January Deadline is Nearly Here

Crikey, it’s December already.  It’s nearly Christmas.  2012, such as it was, is almost over, and good riddance to it.

What’s more, if December is here, can January be far behind? And we all know what is going to happen in January 2013, don’t we? That’s right, the first major deadline for implementation of the Basel III rules!

This part of the new legislation relates to the increased level of capital requirements. The rules were introduced in a bid to avoid any further bailouts by taxpayers, and mean that banks will have to virtually triple their capital holdings.

From January 1 2013 onwards, the minimum capital requirements for risk-weighted assets which banks will have to meet are:-

• 3.5% share capital
• 4.5% Tier-1 capital
• and 8% total capital

Obviously these changes will not happen magically overnight without any planning, organisation, co-ordination and effort by the banks. Let’s face it, with the Christmas holidays looming up; any bank which has not yet made the necessary changes will probably not have done by January 1^st either.

So what will happen for those banks which fail to meet the regulatory deadline? To be honest, probably absolutely nothing.

In the USA, for example, regulators don’t expect to be able to be ready in time, due to the deluge of comments on the new rules they have received from inside the banking industry.  The Federal Reserve Board Governor Elizabeth Duke says she is duty-bound to consider all the issues extremely carefully before finalising the regulations.

Many other countries, including European ones, are also nowhere near ready for January. The problem is that there is no effective international mechanism to police the new rules and ensure they are carried out, meaning that individual countries are all doing their own thing in their own sweet time.

No country wants to be disadvantaged by implementing the stricter requirements before the US banks do it.  The UK, in particular, is worried that in adopting Basel III in full it would become less competitive, and compromise its traditional role as one of the premier global banking centres.

Another way of looking at the new rules is as a golden opportunity for banks to regain the confidence and trust of their customers.  Accepting the need for change and implementing Basel III early could serve to reassure the doubters, calm media criticism, and give early adopters an edge over their competitors.

Not only that, but managers should find that they can use the new reports specified by the regulation to make their business more efficient, as they will have access to a whole new suite of risk and performance reporting information. Basel III is not just for the regulators! Senior managers at the banks need to realise that reform is not just another unwanted expense, but a real chance to reap some valuable commercial benefits.  Let's face it, if ever there was a good time to invest in risk management, data control and better management reporting systems, it is now!