In 2013, KPMG predicted the emergence of Basel 4 even before Basel 3 had been fully implemented. This report looks back on where we were right, and what may lie ahead for banks.
Basel 3 has been the most transformative and challenging reform that banks have had to implement since the financial crisis. Yet even with all of the areas and issues it covers, as standards often do, Basel 3 has served as a starting point for which national and international policies derive their base.
Two years ago KPMG published “Basel 4 – Emerging from the mist?” in which we predicted the emergence of ‘Basel 4’ even before Basel 3 had been fully implemented. Looking back, we see much of what we predicted has come to pass, and in some cases where international standards and national regulation have become more onerous for banks. In this report, “Basel 4 revisited – The fog begins to clear”, we examine the continuing evolution of Basel 4 and the related parallel tracks, as well as the extent of unfinished business that banks need to take into account.
The ‘parallel tracks’ that would have an impact on bank’s capital and liquidity requirements, including capital surcharges for systemically important banks, the use of macro-prudential instruments, resolution and structural separation within banks, have all been taken forward by international and national standard setters.
As Basel 4 has evolved, the strategic and business implications for banks we set out two years ago have become even more pronounced. Banks have raised more capital and/or reduced their on- and off-balance sheet activities, which in turn has increased costs and reduced the availability of bank finance for lending, among other issues. Generally, as discussed in Part Two of our Evolving Banking Regulation report (April 2015) the multiple regulatory and commercial pressures on banks are making it more difficult for banks to develop and implement viable and sustainable business strategies, and to meet the expectations of their customers, investors and regulators simultaneously.
Within this report we present a summary of our September 2013 analysis of Basel 4 and related capital and liquidity requirements and the development over the last two years. The main themes are:
1) The continuing evolution of Basel 4 and the related parallel tracks, and
2) The extent of unfinished business which banks need to take into account.