Implementation of Basel III causes discontent in the banking sector
Published: Wednesday, Oct 16th 2024, 12:10
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Switzerland intends to implement the last part of the comprehensive Basel III banking regulations with "Basel III final" at the beginning of 2025. In contrast, implementation has stalled in the key financial centers of the US, the UK and the EU. The fact that Switzerland is thus becoming a "model pupil" is particularly annoying for internationally active Swiss banks.
At the heart of "Basel III final" is the backing of banking transactions with own funds. It regulates how much of their own capital banks must use when granting loans, as well as the funds they must hold for market risks and operational risks - the latter include legal risks, risks from misconduct or cyber attacks.
Fierce dispute in the USA
Unlike in Germany, the regulation known there as "Basel III Endgame" has triggered a massive controversy in the USA. The US banking industry is running an unusually aggressive campaign against the regulations: it has warned of massive negative consequences for the US economy in gloomy TV commercials and threatened legal action against the authorities.
With success: in September, the US Federal Reserve backtracked and promised a significant easing of regulation. When and in what form this will be implemented now seems uncertain - also in view of the US presidential elections.
The foreseeable delays in the USA have had further repercussions: At the beginning of June, the responsible EU Commissioner announced that the implementation of the Basel III sub-section on market risks would be postponed until the beginning of 2026. She justified this with fears of disadvantages for EU banks. The Bank of England (BoE) has also postponed its "Basel 3.1" package to the beginning of 2026.
Not in convoy
The Federal Council, on the other hand, does not want to hear of a postponement: at the end of June, it confirmed the timetable for the introduction of "Basel III final" - despite increasing pressure from the banking sector for a postponement. The Swiss Bankers Association (SBA) immediately protested that Switzerland was pushing ahead "without need".
This is the case for the industry that it wanted to avoid. "We have always made sure that Switzerland moves forward in a convoy, i.e. that the entry into force is conditioned in terms of time and content to the relevant comparative financial centers," says Remo Kübler, Head of Research at the SBA in an interview.
Kübler fears that if the US decides to implement the regulation only minimally or in a way that deviates from the standard and the UK and the EU follow suit, Switzerland will no longer be able to react. "There is a risk that we will lose the opportunity for a level playing field."
International competition
The main disadvantages are feared by institutions competing internationally, above all UBS and the large private banks. With "Basel III final", they are confronted with increasing capital requirements and significantly more complex regulation, particularly in the areas of market risks and operational risks.
For the Swiss financial center, this means a clear competitive disadvantage, affirms Jan Langlo, Director of the Association of Swiss Private Banks (VSPB). According to insiders, the big bank UBS is also very displeased with the Federal Council's approach.
The internationally active banks now have to calculate with significantly higher capital costs than their competitors from abroad, says a member of the management of a large Swiss bank. This applies not only to financial market services, but also to the granting of Lombard loans to asset management clients, for example.
Capital neutral for domestic banks
The situation is different for domestic banks, where the new rules will primarily result in greater risk sensitivity when granting loans. Under the new rules, banks will have to back mortgage loans for investment properties with more capital in future. In return, however, the capital requirements for owner-occupied property are likely to fall depending on the loan-to-value ratio, says Matthias Degen, partner at consultancy firm KPMG. The bottom line is that regulation is likely to be capital-neutral for domestic banks.
For Zürcher Kantonalbank, it is particularly important that all banks operating in Switzerland have the same requirements, said a ZKB spokeswoman on request. Accordingly, the largest Swiss cantonal bank does not want to know anything about a general postponement: "A postponement would tend to lead to higher implementation costs - because the implementation of the extensive requirements of 'Basel III final' is already very far advanced," said the spokesperson.
©Keystone/SDA
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