Drawing from the lessons of the 2008-2009 financial crisis, the Basel Committee on Banking Supervision (BCBS) started implementing a program for a significant revision in existing requirements on capital adequacy.
This resulted in a system of capital adequacy and liquidity requirements. It was accorded the name of ‘Basel 3’ and endorsed by the Big 20 in Seoul in November 2010. At this moment many details of the system require further development, while the discussions and lobbying will continue in future – above all in respect of systematically important financial institutions (SIFIs). Nevertheless, the underlying principles have been established, while the alignment of the banking system with the requirements of Basel 3 looks inevitable.
Now that the national regulators have approved the main system for requirements, the focus of attention is shifting to implementation – determination of the impact on businesses and the establishment of a plan for the compliance of bank systems in accordance with new requirements. There is convincing evidence that even though the system has been adopted in general, actual implementation in different jurisdictions will have its own specifics. Although the transitional period appears long, the final deadline for completing implementation in 2019 should not distract financial institutions. They should be ready to demonstrate the flexibility of their approaches to capital and liquidity resilience much sooner and meet the interim deadlines during implementation.
Despite the lack of absolute clarity, one should not expect clarifications of all disputed issues. Previous experience with the requirements of Basel 2 showed that preliminary analysis, strategic evaluation and robust planning represent the cornerstone for successful implementation. Companies should also remain flexible and be prepared for any subsequent changes and further developments.