Basel III To Hit Banking Profits

by Ulrika Lomas, Tax-News.com, Brussels

25 October 2010

The implementation of the Basel III framework could severely impact banks’ profitability, by as much as a third, with the impact to be borne by consumers, customers and businesses alike, according to warnings from ACF consultants, providers of training to the banking industry.

ACF said, despite the implementation of the Basel III framework being three years away, some of the world’s biggest banks have begun training their staff to work within the more stringent guidelines that require banks to maintain higher capital ratios and uphold new liquidity requirements.

Commenting from the analysis of data from its advanced training simulator – Global Banker, Dr Lawrence Galitz, CEO of ACF Consultants said:

“The bad news is that operating under Basel III will be more expensive for banks. Global Banker shows that the new rules could potentially cut banks’ profitability by a third. This may force banks to widen their margins and put up the cost of lending. If it’s going to cost banks, it’s going to cost us [the consumer].”

“The good news is that banks will definitely be safer. A bank operating like Northern Rock was five years ago couldn’t have continued if Basel III had been introduced earlier; it would have had to change its ways.”

The simulator has been programmed to replicate 2016 onwards – when the Accord is half-way through implementation – rather than 2013 when it starts being phased in.

“Working with simulated banks under the new system gives us a fascinating preview of what life in the banking world will be like in the next 5-10 years,” Galitz said.

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