Bank regulators adopt the Basel III standard for working capital requirements

Thanks to the newly approved Basel III standards recently put into place, in the future banks will need to increase their working capital buffers to 7 per cent of their liabilities and assets.

The newly raised standards, approved by a banking convention held in Switzerland recently and attended by banking officials from 27 different countries, is comprised of a common equity cushion of 4.5 per cent in conjunction with a buffer for capital conservation of 2.5 per cent.

Financial regulatory bodies have touted Basel III as the new gold standard for re-establishing strength in regards to working and venture capital on a global scale, and Lord Turner, chairman of the FSA, has said that the new regulations are sure to add resiliency to the banking systems of the world.

Jean-Claude Trichet, European Central Bank president, released a statement in support of the new regulations, referring to the plan as something that will strengthen global capital standards on a fundamental level.

Industry experts have cautioned that in order for banks to comply with the new higher rates put in place by Basel III, there will most likely be more fundraising undertaken by worldwide banks; additionally there could be a further tightening of availability on personal and business loans as banks begin to shore up their cash reserves.

Banks in the UK, however, have already adhered to the new limits, which will minimise the impact to a great degree in regards to the domestic banking industry.  Basel III will be instituted over the next several years in phases, subject to final approval by the G20, which is scheduled to review the new regulations this coming November.

If approved, the new regulations will begin going into effect in 2018, and are scheduled to be in full effect by 2023, which will give participating banking institutions ample time to adjust their financial offerings to suit.

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