Impact of new regulations on the Banks
On 16 December 2010, the Basel Committee published its final rules to reform the global regulatory framework for banks. The liquidity rules and capital rules are together known as the “Basel III Rules”. The Basel III Rules, first published as proposals in December 2009, have been, between then and late 2010, the subject of intensive lobbying and negotiation by banks, regulators and national governments. As a result of this lobbying process, amendments to certain aspects of the capital and liquidity proposals were provisionally agreed by the Committee in July 2010 and are reflected in the December 2010 papers. The transitional arrangements and calibration of the capital ratios were announced by the Committee in September 2010, while the G20 approved at the November Seoul meeting both the content and timing of the Basel III reform package. Additional loss absorbency criteria in the form of a write down conversion mechanism for all additional Tier 1 and Tier 2 instruments was added to the Basel III quality of capital rules by the Committee in an additional document published in January 2011.
The Basel III Rules are additional to reforms to the capital rules finalized by the Basel Committee in July 2009 which will come into effect at the end of 2011. These reforms focus on enhancing the trading book capital requirement for banks by introducing a new incremental default risk charge for trading bank assets, requiring market risk to be calculated by using stressed data inputs, bringing the treatment of securitization exposures in the trading book into line with banking book exposures as well as making changes to the securitization framework to ensure re-securitization exposures are sufficiently capitalized. The July 2009 rules are, of themselves expected, significantly to increase the capital requirements for trading book and securitization exposures before the Basel III Rules take effect.