A major event for financial services companies across the globe is happening this weekend in Basel, Switzerland. Regulators from 27 countries are meeting there to finalize new rules that will impact how banks manage risk in the future. Known as “Basel III”, the new set of rules are a direct response to the financial crisis that began over two years ago. The rules will take time to implement, but they are a significant shift from the Basel II Accord that allowed individual banks to determine their own capital levels based on their own internal rating system. The Wall Street Journal reported the following today.
Convening in the Swiss city of Basel, the officials are hoping to cinch a deal this weekend. In one of the most far-reaching steps, the current proposal would require global banks to maintain basic levels of capital equal to at least 7% of their assets—much more than existing standards of roughly 4% for large U.S. banks.
The effort would transform banking, potentially forcing banks to take fewer risks, make less profit and face more government scrutiny. It comes nearly two years after the chaotic bankruptcy of Lehman Brothers convulsed the global economy and led to taxpayer-funded bailouts world-wide. U.S., European and Asian officials hope an accord will create new global standards designed to firm up the foundations of large international banks.
The hope of the Basel Committee on Banking Supervision is that the new rules will create a financial system that is more resilient and able to withstand future crises. Only time will tell if this will be the case.