Basel III is not enough to prompt banks’ standalone credit strength to return to pre-crisis levels on its own, research from Moody’s argues.
A new report by the ratings agency agrees that the framework laid out by the Basel Committee on Banking Supervision is a positive development for the global banking sector, as it imposes “sizeable” capital and liquidity buffers to support the resilience of the system.
However, the study points out the recovery of banks’ credit strength is influenced by a number of factors other than regulation, such as emerging risks on the global stage, “skittish” financial markets and hampered recovery in many advanced economies.
Alain Laurin, a Moody’s senior vice president and the co-author of the report, comments: “While directionally positive, Basel III does not cure the structural challenges banks continue to face from a credit perspective, such as illiquidity and high leverage.”
He adds the regulations also fail to “alleviate the tension between profit-maximising equity holders and bank managers in contrast to risk-averse bondholders”.
Moody’s also claims that some banks, such as those left in a weakened state by the financial crisis, could see their credit profiles deteriorate as they struggle to comply with Basel III.
The report concludes that the new regulatory framework should be regarded as just one element of a wider programme to strengthen the ability of banks to withstand economic downturns.
www.fundweb.co.uk
A new report by the ratings agency agrees that the framework laid out by the Basel Committee on Banking Supervision is a positive development for the global banking sector, as it imposes “sizeable” capital and liquidity buffers to support the resilience of the system.
However, the study points out the recovery of banks’ credit strength is influenced by a number of factors other than regulation, such as emerging risks on the global stage, “skittish” financial markets and hampered recovery in many advanced economies.
Alain Laurin, a Moody’s senior vice president and the co-author of the report, comments: “While directionally positive, Basel III does not cure the structural challenges banks continue to face from a credit perspective, such as illiquidity and high leverage.”
He adds the regulations also fail to “alleviate the tension between profit-maximising equity holders and bank managers in contrast to risk-averse bondholders”.
Moody’s also claims that some banks, such as those left in a weakened state by the financial crisis, could see their credit profiles deteriorate as they struggle to comply with Basel III.
The report concludes that the new regulatory framework should be regarded as just one element of a wider programme to strengthen the ability of banks to withstand economic downturns.
www.fundweb.co.uk
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