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The Agenda of Basel 3 - Benjamin Mauerberger

Apr. 30, 2011 3:55 AM ET
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The enactment agenda for Basel III has come under increasing scrutiny as countries look to define their capital liquidity structures. With an initial eight  years defined by the Basel III accord, we are now seeing increasing resistance from countries to adopt the new financial regulatory control in Europe and other locations. Recent debt issues in Greece and Ireland have shown the system to be fragile and subject to contagion issues.  It may be in certain approaches a similar structure to the Basel 1 accord, with tighter restrictions and heightened degrees of financial regulation.  Additionally the proposed reform will look at influencing the structure of corporate dividends in the framework of the capital markets. Will this influence how banks and other financial institutions report earnings or reinvest profits. Time will tell.  For this reason, Basel III will heighten the present funds prerequisites for financial institutions considerably.

The principles of  the new financial reform have been introduced to combat the potential for liquidity issues and contagion in the financial markets. The Global Financial Crisis was an important selling point for the Basel III reform as it identified the holes in regulatory reform, and liquidity strength. One must remember though, that the timeline behind the new reform will play adverse affect on the banking sector. Proposed changes over an 8 year period, may come under further scrutiny by banks in the coming years.  The consumer banking industry proposes that Basel III will significantly damage the economic system.

Within the new framework of financial reform. it is important to recognize the soft areas of reform and focus on targeting these areas. Banks and Financial institutions have show resolve and provided support for new reform in these areas. The time line has become a factor. The recently approved U.S. economic reform regulation has stepped in to cover the slack left by other previous bills passed. This will now supply support and flexibility for the Basel III accord. Previous conditions set by the Basel I and Basel II accords are gradually phased out, so as to accommodate for the new Basel III reform. Once again however the topic for debate is the time frame and whether the current timetable places too much adverse pressure on the financial and banking system. Some economists have noted that the reform could lead to an overall drop in Return on Investment and Equity for shareholders and investors alike. This however has not been proven and is purely a scenario played out by economists and market analysts.

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