The Basel Committee has issued the Basel III rules, the global regulatory standards on bank capital adequacy and liquidity agreed by the Governors and Heads of Supervision, and endorsed by the G20.

The Committee released the rules text of the Basel III Framework, covering micro- and macroprudential elements, and sets out higher and better-quality capital, better risk coverage, the introduction of a leverage ratio as a backstop to the risk-based requirement, measures to promote the build-up of capital that can be drawn down in times of stress, and the introduction of two global liquidity standards.

Processes have been put in place to ensure the “rigorous and consistent global implementation of the Basel III Framework”, and the standards will be gradually phased in so the “banking sector can move to the higher capital and liquidity standards while supporting lending to the economy”.

The Committee will use the transition period to assess whether its proposed design and calibration relating to the leverage ratio is appropriate over a full credit cycle and for different types of business models. Any adjustments would be carried out in the first half of 2017, with a view to migrating to Pillar 1 treatment on 1 January 2018.

The Framework is “a landmark achievement that will help protect financial stability and promote sustainable economic growth,” commented Nout Wellink, chairman of the Basel Committee on Banking Supervision and President of the Netherlands Bank. “The higher levels of capital, combined with a global liquidity framework, will significantly reduce the probability and severity of banking crises in the future.”

He added: “with these reforms, the Basel Committee has delivered on the banking reform agenda for internationally active banks set out by the G20 Leaders at their Pittsburgh summit in September 2009”.

The British Bankers’ Association (BBA) commented: "In the UK we have two financial services industries: one is our domestic industry, serving UK customers; the other is the global industry which is centred in the City, which competes globally for business and talent, and which trades globally but pays tax locally.
The financial services industry contributes more than £1 in every £10 raised for the Exchequer. Until there is a genuinely global consensus on pay in financial services, the challenge for policymakers will be to ensure the UK continues to attract this valuable business."

The Committee has also released the Results of the comprehensive quantitative impact study, following a QIS exercise to assess the impact of capital adequacy standards that were announced in July 2009, and of the Basel III capital and liquidity proposals from December 2009.

A total of 263 banks from 23 Committee member jurisdictions participated in the QIS exercise, including 94 Group 1 banks and 169 Group 2 banks.

The average common equity Tier 1 capital ratio of Group 1 banks at 31 December 2009 was 5.7 per cent, compared with the new minimum requirement of 4.5 per cent. For Group 2 banks, the average ratio was 7.8 per cent.

The QIS did not take into account any transitional arrangements, such as the phase-in of deductions and ‘grandfathering’ arrangements. Instead they assume full implementation of the final Basel III package, based on data as year-end 2009.

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