Basel III, CRDIV, EU Crisis: The 'malediction'...

Basel III, CRDIV, European Union Crisis: The "malediction" of the new banking regulations.

In October 2010 at the Seoul Summit, the G20 Leaders committed to the adoption and full implementation of the Basel Committee’s new bank capital and liquidity framework within the recommended time frame. They also approved the Financial Stability Board (FSB)’s policy framework for reducing the moral hazard posed by Systemically Important Financial Institutions (SIFI).

One year later the World has changed again with another turn for the worst; the exposure of European banks to the Greek, Portuguese, Spanish and Italian markets is inevitably pushing the markets into a new crisis. In the last few days, Europe’s financial troubles have deepened as worries have arisen about the health of another bank the Franco-Belgian-owned Dexia which like many other European banks, passed the European stress test to assess its financial health just three months ago. Dexia's problems emphasize growing criticism from the US about the region's handling of its crisis. Many market participants are also wondering if Dexia is not the tip of the iceberg and the worst still is to come.

 In this unprecedented economic and financial environment, how are European Banks going to be able to appropriately implement the new Capital Requirement Directives-IV (CRD IV) package? On July 20th, 2011 the 8,300 European banks from 27 different countries received the Final proposal of the CRD IV from the European Commission (EC). The draft proposals unveiled this Summer – which still need approval from the 27 Member States and the European Parliament – make the EU the first jurisdiction to start implementing the global Basel III capital and liquidity guidelines that were adopted last year.

In today’s economic meltdown are these sets of rules still relevant to make the European financial system safer when it require banks operating in Europe to raise an estimated €460bn in capital by 2019 or to substantially reduce their risk and balance sheets? Why today should EU be the first to meet the Basel Committee's New Guidelines through CRD IV when the "Rest of the World" is implementing Basel III at their own pace?