Third time’s the charm? The long road to Basel implementation
1975 Basel Committee on Banking Supervision (BCBS) established by G10 countries
1988 Basel Committee produces Basel Capital Accord, applying international standards for credit risk US President Barack Obama, UK Prime Minister David Cameron and German Chancellor Angela Merkel at the G20 Summit in Toronto, Canada
there is a more manageable way to stabilise and regulate the market? “You don’t need to have the whole world agreeing on it,” says our anonymous Chief Risk Officer. “If you have the G20 agreeing on it, than that’s enough because I don’t think you will see a hedge fund trader going to Angola. He may consider going to Switzerland, Singapore or Hong Kong, but he would certainly not set up in Uzbekistan only to avoid the taxes. That’s why the G20 doing it alone would be sufficient. In the fi nancial business, if you look at equities that are trading globally, the G20 makes up about 99 percent of global trading.” And what of the oh so familiar complaint that an excessive focus on regulation and compliance will stifle economic recovery? Notoriously resistant to any perceived meddling, the financial industry isn’t exactly falling over itself to implement changes. The idea that rushing such plans could slow recovery has been seized on with vigour. “I don’t think it’s actually oversight of risk management which will stifle recovery,” counters Bob McDowall. “It’s basically about how regulation is implemented and operated. “Obviously managing systemic risk is extremely important. That comes right at the top because if the system goes under, the systemic risk goes right to the top. I think secondly you’ve got to enable banks to service what I call genuine economic requirements; genuine funding of commerce and industry to meet its requirements as it comes out of this recession. The third point is it’s important that the national fi nancial system is safeguarded against ‘risk pollution’ from outside. Each country has to look after its own national fi nancial and banking system. That may lead to confl ict overseas particularly in Europe. For example, for banks from other jurisdictions or countries who conduct business in the UK. We already have the Bank of England telling the banks here to manage their risk within
Europe. It’s not so much their direct exposure to sovereign bonds in the Eurozone, but to the institutions within those jurisdictions which are economically weak at the moment.” Ultimately, even the idea of a pan European regulator, let alone a worldwide one, might just be a bridge too far. The crisis has been a chastening experience for the industry and being seen as a global institution isn’t the badge of honour it once was. Banks are increasingly focusing on local markets and targeting international involvements much more carefully. In such a scenario is it really feasible or desirable to apply a one-size-fits-all regulatory framework? “The idea of the pan European regulator is a political issue,” says McDowall. “I don’t think it necessarily satisfies the regulatory needs of each national economy. You can have agreed principles, but principles will be enshrined in national legislation or financial regulation in different ways to suit the needs of the national economy. It could also end up reflecting the political view of the industry because I’m afraid politics is embedded with financial regulation.” It seems the world may have to continue its wait to see the fi nancial industry brought under some form of centralised control. The long and winding road still being traversed towards adoption of the Basel accords is a clear indicator that these kinds of changes can’t happen overnight. What is required is cooperation both between national governments and their industries, and between different governments themselves. The turmoil the world has experienced over the last few years had complex roots and will have equally complex resolutions. Furthermore, the intertwined nature of today’s global markets mean that we are all in this together. It’s up to everybody involved to work towards realistic and genuinely beneficial solutions. Hopefully we won’t still be debating the implementation of Basel XI in 2085.
1999 New Basel Capital Accord, or Basel II, is proposed. Outlines new focus on operational risk designed to plug gaps left by earlier agreement
2005-2009 Basel II goes through a number of updates in response to perceived problems with initial draft
2009 Basel III documents published for review
2010 G20 meet in Toronto and reassert support for Basel rules
2012 Basel III implemented?
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