Basel III regulations are onerous and complex, but must ultimately be managed, according to a panel of three banking experts who made presentations during the October 18, 2012 Global Association of Risk Professionals (GARP) webinar to an audience estimated at around a thousand. The webinar follows on the heels of a McKinsey report that estimates banks’ average return on equity (ROE) will drop from 20 percent ROE in 2010 to 7 percent upon Basel III implementation.
The session was kicked off by Mario Onorato, Senior Director, Balance Sheet and Capital Management, IBM, who talked about business models and IT implications.
First, Onorato summarized Basel III highlights and impacts. The new regulatory regime means banks must hold a greater quantity and higher quality of capital. There will be increased risk weights on instruments such as securitizations. There are new liquidity buffer requirements and “the opportunity costs can be substantial,” he noted.
The impact will be narrower profit margins. Basel III will cause a reassessment of business models, Onorato said. “There will be a move from the enterprise model to the legal entity model,” he predicted. There will be reduced reliance on short-term funding. There will be increased pressure on information technology (IT) and data management systems, to ensure availability of high quality data.
Banks are already moving from “deleveraging” to “de-risking,” Onorato said. Basel III will decrease the long-term average banking sector return on equity (ROE). There are challenges, he concluded, “all the way from too-big-to-fail to too-small-to-survive,” but ultimately they can be managed.
The webinar presentation slides can be found at: http://event.on24.com/r.htm?e=523101&s=1&k=4D7D88CA0CFABFBB6A010851712841BF>