The key objectives of the Basel III guidelines are to strengthen global capital and liquidity regulations by increasing the proportion of Common Equity, limiting Tier II innovative instruments and abolishing Tier III in the capital requirement stack. Non-capital, non-risk ratios like leverage and liquidity have been introduced to ensure banks do not use off balance sheet vehicles to significantly stack up on exotic and contagious risks and to ensure adequate provisions for meeting net cash flow requirements. In addition, certain risk weight estimations have been made more stringent in the light of the global financial crisis.
The near to medium term impact could be a decrease in the regulatory capital adequacy, a medium term decrease in RoE and in the long term Banks will have to manage their growth optimally with limited and more stable sources of funding. The Capital Conservation Buffer may impact Banks' dividend policy while the cost of compliance will also increase. Basel III guidelines could be the trigger for "Back to Basics" banking as it will be imperative for Banks to devise a strategic and operational response to counter the medium and long term implications of these guidelines.
CRISIL Risk Solutions provides a comprehensive set of offerings covering various aspects of the Basel III implementation including
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- Basel III Impact Assessment & Diagnostic Review
- Portfolio & Capital Optimisation Strategy
- Liquidity Management Strategy
- Risk Measurement Models including stress testing & scenario analysis
- Capital & Risk Weight Computation
- Portfolio & Business Analytics
- Training & Knowledge transfer