Christian Noyer: Basel III and CRD IV - Impact and stakes

27 June 2012

Mr Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the BIS, said that Basel and CRD IV represented "a quantitative and qualitative leap aimed at addressing the shortcomings highlighted by the current financial crisis".

“Many questions surround the future of the European banking system, which has already undergone major transformations in the recent period while significant changes in its prudential framework and the organisation of its supervision are currently being reviewed. Far from putting on the back burner questions concerning Basel III and its application in Europe, that is to say CRD IV and its project to create a “single rule book” for European banks, I believe, on the contrary, these developments underscore the importance of better understanding the current reform and taking time to reflect, in order to ensure that the new framework for banking regulation and the distribution of supervisory responsibilities in Europe will deliver all their expected benefits.”

Basel III and CRD IV represent a quantitative and qualitative leap aimed at addressing the shortcomings highlighted by the current financial crisis

Basel III is first and foremost a response to the financial crisis that started in 2007. Basel III is naturally based on Basel II which establishes the current capital adequacy rules. However, Basel III goes further than merely changing and updating the existing rules.

• Basel III indeed considerably strengthens the capital requirements that banks must meet, but this reform is more extensive in that it significantly enhances the prudential framework: in addition to capital requirements, it establishes liquidity requirements, and a leverage ratio is set to be introduced in the medium term.
• Basel III is a major step forward in that it leads to a much closer interaction than has been the case to date between the individual supervision of banks, known as microprudential supervision, and the overall supervision of the banking and financial system, or macro-prudential supervision. This broader view of banking supervision, taking account of all its facets, translates into a number of provisions and notably introduces additional capital buffers (a capital conservation buffer, a countercyclical buffer and a buffer for systemically important financial institutions) in excess of the regulatory minimum.

Basel III therefore represents a quantitative and also a qualitative leap.

The difficult economic environment stresses the importance of implementing Basel III in an appropriate manner but does not call into question the rationale of the reform

Without playing down the potential risks associated with the implementation of Basel III, to which the Autorité de contrôle prudentiel (ACP) pays close attention, this reform can be successfully implemented.

• First, French banks, which have complied with Basel 2.5 rules since December 2011, are in a strong position to meet the new capital adequacy requirements when they come into force.
• The ACP is closely monitoring credit institutions’ preparations for Basel III.
• It is also essential to closely monitor and take into account the impact of the new regulations on the financial system and the economy and to assess the different interactions in order, if necessary, to deal with the unforeseen consequences of Basel III.

Full speech

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