Have you guys ever heard of ‘Basel Regulations’? If you are interested in finance or economy, you would have. Today’s topic is on domestic implementation of Basel 3 regulations. Basel 3, also called as the Third Basel Accord, is defined as a global regulatory standard on bank’s capital adequacy, stress testing and market liquidity risk agreed upon by the members of the Basel Committee on Banking Supervision (BCBS) in 2010–11, and scheduled to be introduced from 2013 until 2018. Basel 3 is designed to address recent problems related to global economic crisis. Overall, Basel 3 strengthens bank capital requirements and introduces new regulatory requirements on bank liquidity and bank leverage.
Basel 3 is extensively replenished from Basel 2 regulation, which attracts lots of attention and a high expectation. With regard to the domestic implementation of Basel 3 regulations, Korean government made an official announcement that the implementation is delayed. It was planned that Basel 3 regulations are to be effective in Korea as of the upcoming January. The reason for the delay is that the government is concerned about the fact that other BSBC member countries are reluctant to introduce domestic implementation of Basel 3. One of the key members, the US, shows its action with hesitation. Why do some countries hesitate about domestic implementation? With Basel 3 introduced in domestic banking businesses, evaluation procedure for loan application will be more complicated, and it might bring damages in real economy.
Jung Ji Won, the Director of Financial Services bureau at Financial Commissions Services, held a regular press briefing delivering Korea’s stance on Basel 3 implementation. According to the briefing, Korean banks’ BIS ratio is 14.09% which shows quite satisfactory level. However, due to the uncertainty of domestic economy next year, the FSC is going to take a close analysis and thorough consideration before the domestic implementation of Basel 3. This is also driven by the fact that the key BCBS members such as EU and US are taking ambiguous positions with regard to their implementations, as mentioned above. After FSC’s press briefing, one of the professionals in banking industry made a comment that the government’s stance is more than welcome as it allows more time for banks to enlarge their capital capacity.
However, other 11 out of 27 BCBS members will make Basel 3 regulations domestically effective as of the upcoming year, as they agreed on reinforcing international integrity between financial institutions. Overall, Basel 3 itself is a policy in need to seek stability in international economy. However, we should be aware that each BSBC member country relies on a different financial background and current situation. Keeping this in mind, we have to be more careful about the domestic implementation of Basel 3 regulations.