Day two at the International Payments Summit

While we were eased into this year’s International Payments Summit on Monday, yesterday’s sessions contained more heated debates. Discussions yesterday first of all turned to proposed Basel III regulations which will require far more capital to be raised by the banks (a core capital ratio of at least 6 per cent will have to be maintained). According to a number of projections from major financial institutions, this means that the European banking sector as a whole will have an aggregate extra funding requirement of more than one trillion Euros, or nearly one and a half trillion dollars, to comply with Basel III.

As further regulatory requirements are being introduced, three observations can be made. First of all, as banks will have to meet these capital requirements and new standards for stability, the banks’ liquidity will continue to be an issue. Secondly, from the bankers‘ point of view, the worst of the crisis is over, but from the regulators’ point of view, the real work is only just beginning as they are getting to grips with the kind of policy changes around liquidity and capital management they want to put in place.  As the economy recovers, these rules are likely to be phased in gradually and will tighten up more and more. Thirdly, it became clear that regulators are not there to introduce innovation and we probably all agree that this was never expected of them. However, there is a risk that innovation and progress will be dampened by too much regulatory burden. As such, the right balance has to be found as more stringent requirements on banks could slow down economic recovery and stifle businesses and a timely economic recovery.

Later, during the corporate treasurers’ panel session, discussions once again emphasised that corporates are still concerned about a lack of engagement by their banks and a lack of information around SEPA migration. Banks seem to be providing the payment services that corporates are looking for but they are not providing enough information for corporates to understand and buy into the concept of SEPA migration.

What’s more, corporates are finding it increasingly challenging to manage relationships with multiple banks due to the lack of common electronic standards and systems. For example, many banks still have their own unique file layouts and different connections into SWIFT. From these discussions, it became clear that banks need to provide the basic data but better quality services to differentiate themselves – now seems the right time for the banks to re-think.