In the aftermath of the financial crisis of 2008–2009, the Basel Committee of Banking Supervision (BCBS) embarked on a program of substantially revising its existing capital adequacy guidelines. The resultant capital adequacy framework is termed ‘Basel III.’ The G20 endorsed the new Basel III capital and liquidity requirements at their November 2010 Summit in Seoul. There are many areas of detail needing further development, and worldwide debate and lobbying will inevitably continue—most notably in relation to the whole issue of systemically important financial institutions (SIFIs). The core principles, however, are set, and complying with the Basel III framework is inevitable.
With the core framework being adopted by the national authorities, the focus of attention is now shifting towards implementation—determining business impact and planning for compliance. There are strong indications that even though the framework in principle is being adopted, actual implementation will become divergent across various jurisdictions. Although the transitional period appears long, the 2019 deadline to complete implementation should not distract institutions from the need to demonstrate capital and liquidity resilience much earlier and meet interim deadlines along the way.
Prior experience with the Basel II framework has shown that early analysis, strategic evaluation, and robust planning are all crucial to success in the ultimate implementation. Firms must also remain flexible to adapt to subsequent changes and developments.
This document attempts to summarize the key details of the Basel III capital adequacy framework and explores some of the practical implications and considerations for firms to establish an effective and efficient implementation procedure.