Global Regulators Face Test Implementing Basel III Rules

By Donna Borak

Though the Basel II process to write new international capital standards lingered for nearly a decade, its successor has come a remarkably long way in just the past year. Global leaders under the auspices of the Basel Committee on Banking Supervision agreed on a new set of regulatory standards that would improve the quantity and quality of bank capital and discourage excessive leverage. Still, 2011 will be critical as regulators across the globe start the difficult task of implementing the new rules even while they tackle issues left unfinished by the agreement, such as a potential capital surcharge on the largest institutions. “A lot of hard work lies ahead in terms of implementing all these new capital guidelines and liquidity” requirements, said Mary Frances Monroe, vice president in the office of regulatory policy at the American Bankers Association. “The domestic agencies have to issue notices of proposed rulemaking that will have to take into account Basel III, plus the overlay of Dodd-Frank.” The new agreement was designed to prevent a repeat of the financial crisis. “The lessons of the crisis are very well understood,” said Karen Shaw Petrou, the managing partner at Federal Financial Analytics Inc. “All of these rules are significant improvements, and far tougher than the U.S. and the global financial system has ever had before.” But even with a consultative paper released in December 2009 to jump-start the process, reaching a new agreement this year was not without fits and starts along the way.

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