Basel III norms vital, but more is needed: Basel Committee

New international rules drawn up in response to the 2008 financial crisis, known as Basel III, are vital to nursing the global banking system back to health, but more is needed, the head of the Basel Committee on Banking Supervision said today.

"With Basel III, we have laid the foundation with a strong set of minimum standards. But they are exactly that - minimum standards. They are necessary but not sufficient," Wayne Byres said in an address to a Financial Stability Institute conference on risk management and supervision in Basel.
The Basel III international banking regulations, which are aimed at strengthening the ability of banks to withstand future crises and to reduce concerns about European banks, are to be phased in from 2013 to 2019.
Among other things, they call for banks to maintain higher levels of higher-quality capital, with minimum top-rated common equity holdings at banks increasing from 2.0 per cent to 7.0 per cent of risk weighted assets.
The new rules also demand improved risk coverage, especially for complex illiquid trading activities.
In Byres' speech, a transcript of which was obtained by AFP, he compared the new rules to an exercise regime aimed at getting back into shape an unhealthy person who has been living too long on junk food and not exercising.
"In pre-crisis years, the financial sector lived life to excess: the good times were difficult to resist and little restraint was shown," he lamented.
"We are all now dealing with the inevitable hangover, and parts of the industry are in ill-health and badly out of shape. A few banks are in intensive care and some didn't make it," he said, insisting: "we therefore need to guide the industry through a change of lifestyle."
He rejected criticism by some that Basel III demands too much too quickly from an already struggling sector.
"The new requirements that are meant to be in place next year are modest," he said, pointing out that "full implementation is still more than half a decade away, and more than a decade after the crisis began, so we cannot be accused of rushing things."
The new rules, he said, were essential "for restoring the financial health of banks, including so that they will willingly and actively deal with one another, which is in turn critical to restoring the functioning of the financial system more generally."
Yet they were not enough, Byres said, pointing out that more needed to be done to overhaul the global regulatory framework and to ensure that national authorities actually implement the reforms in a timely and consistent manner.