On the brink of entering the Basel III era...

The Seoul G20 summit should be the final step before we enter in the “Basel III era”. This set of regulations will mark one of the most significant developments since the original Basel accord in 1988. 

The summit reforms will have fundamental implications for the global financial system.  Basel III will reinforce and extend the scope of balance sheet strengthening measures already initiated by many banks. The complexity of the transition process could prove to be unmanageable for banks with weaker balance sheets and may lead to asset disposals as banks alter their business profiles, whilst a greater convergence in national regulatory capital and liquidity ratios may also contribute to stronger market discipline.

If the G20 get political agreement to ensure consistent local implementation, an even playing field will be created. Consistency will determine the success or failure of Basel III. If international consensus fractures, it will raise fears that European banks will be unable to compete with the riskier balance sheets profiles of US and Asian Banks.