A committee commissioned by the Bank for International Settlements
questions whether financial institutions can meet the capital requirements mandated in Basel 3.
In September, the Basel Committee on Banking Supervision
announced reforms to global-banking standards
that increase the minimum common-equity requirement to 4.5% from 2% and order banks hold a capital-conservation buffer of 2.5%, as well.
But this week, the committee said banks will be hard pressed to adhere to the new regulations and remain in business.
"It is not possible to directly observe the minimum amount of capital needed for a bank to be viewed as viable and solvent by investors and creditors, including short-term funding providers," the 25-member committee said in its October report to the Swiss banking giant.
"Presumably, market participants make some assessment of the likelihood and size of shocks that they expect a bank to be able to withstand, and transact only with those banks that they believe have a high probability of remaining solvent in the future, consistent with their risk tolerance," according to the committee. "Unfortunately, we cannot observe these market assessments directly."
The committee also said there is "a certain circularity into the relationship between historical ratios, regulatory ratios and assessments of potential losses," as the market may demand a level of capital based on historical regulatory requirements and "the perceived costs of falling below those ratios."
Meanwhile, the president and chief executive of the Securities Industry and Financial Markets Association
said the industry and regulators alike face an unprecedented task over the next few years.
Tim Ryan also wonders if the chore is outside the "historical purview" of some of the people and agencies undertaking the Herculean effort.
"235 rulemakings, 41 reports, 71 studies authored by eleven different federal agencies, bureaus and the Government Accountability Office," Ryan told the National Economists Club in Washington Tuesday. "That’s what, as legislated by the Dodd-Frank Act, needs to be studied and written over the next two-to-five years. And that’s just in the United States."
Write to Jason Philyaw