Basel III Aims For 2013 Implementation
Consisting of representatives from twenty-seven countries, the Basel Committee on Banking Supervision (BCBS) provides a forum for discussion and cooperation with regard to standardizing banking regulations of member countries. The BCBS was initially created by the central bank governors of the Group of Ten (G-10) nations – which consists of eleven member nations, being United States, United Kingdom, Sweden, the Netherlands, Japan, Italy, Germany, France, Canada and Belgium, with Switzerland joining later. Other member nations participating in the BCBS are Australia, Argentina, Brazil, China, Hong Kong SAR, Indonesia, India, Korea, Mexico, Luxembourg, Russia, Singapore, Audi Arabia, South Africa and Turkey.
The meeting reportedly focused on strategies to ensure that banks have sufficient reserves to avoid a repeat performance of the economic collapse of 2008 brought about primarily by flaws in the banking system. However, while banks would want to ensure that reserves are sufficient, this should not come at the expense of lending, which is essential to economic recovery. The reforms call upon banks to increase their minimum core capital reserve from the current 2 percent to 4.5 percent of assets, while at the same time setting aside another 2.5 percent reserve to deal with extraordinary circumstances.
Basel III should not be seen as a quick fix, but rather a preventative strategy, which may take a number of years to implement, and will be enforced by each member’s local banking regulatory bodies. The United States, along with some other nations, are required to start implementing the new Basel III standards at the beginning of 2013, with a two-year phase in anticipated in order to avoid excessive pressure on banks. Some banks, such as Bank of America and JP Morgan Chase, have already built up capital and boosted profits since 2008, and are therefore likely to implement the measures with relative ease. It appears that the Basel III requirements dove-tail well with the recent Wall Street reform bill which pulls the reigns in on banks engaging in risky lending practices.