European Payments Council Blog and Discussion Board
Join the European Payments Council (EPC) discussion board to have your say on recent Single Euro Payments Area (SEPA) developments and highlight subjects that you would like to debate. The platform has been designed to ensure the communication of frequent and useful EPC information as well as engage the payments community and encourage the exchange of opinions. Please note that by accessing or contributing to the discussion board you agree to abide by the terms of the EPC Blogging Policy, so please read them carefully before doing so.
To receive notification when a new EPC blog goes live, subscribe using the RSS feed in the left-hand column of this webpage.
Living with Basel III - The Impact on the Payments Market Viewed 7957 times
In December 2010, the Basel Committee of Banking Supervision (BCBS) approved the revised prudential framework referred to as Basel III. The reforms establish new metrics for liquidity, leverage and stable funding. Basel III will affect banks that provide access to payment systems for their clients. Based on the new framework, banks will have to set aside liquid assets and prove stable funding to support settlement-related facilities. Uncommitted facilities will no longer be exempt from regulatory capital requirements. As a result of the new regulatory focus on intra-day liquidity, and the need to manage it as a scarce and costly resource, banks are increasingly likely to bear liquidity efficiency in mind when managing their payment services.
According to the recommendations of the BCBS; implementation of Basel III should be completed by 2018. The effects of these new measures will however, have an impact on the payments market long before this deadline. Some communities, notably the UK, have already begun to implement the liquidity regime element of Basel III. In the European Union (EU), the major provisions of Basel III will be implemented with the amended Capital Requirements Directive (CRD) referred to as CRD IV.
It is early days to fully predict how Basel III will affect the cost and systemic risk considerations underlying the provision of payment services. The one thing certain however, is this: Basel III marks only the beginning of increased regulatory scrutiny of the payment market with regard to potential systemic risks. In Europe, the new European Banking Authority is likely to play an important role in providing technical guidance around the implementation of CRD IV.
Another trend to keep an eye on is to what extent the tightened requirements introduced with Basel III will impact the expectations voiced in particular by the European Commission to open the euro payments landscape for new market participants. Based on this expectation, the Payment Services Directive (PSD) adopted by EU Member States in November 2009, introduced payment institutions (PIs) as a new category of non-bank payment service providers. Non-bank service providers active in payments are not subject to the stringent rules introduced with Basel III thus giving them a competitive advantage over banks.
It is also likely that Basel III will have a significant economic impact: the Institute for International Finance (IIF) and the European Banking Federation (EBF) estimate a negative economic impact of potentially one to two percent of GDP for the US economy and four to six percent of GDP for the European economy, with an estimated reduction of financial sector profits of two to four percent. And there is more to come: at its meeting in Seoul in November 2010, the G20 confirmed that additional measures would be imposed on systemically important financial institutions and globally important financial institutions which will trigger a change of their capital structure. Several of these institutions have already embarked on core capital-raising exercises to help secure their capital adequacy ratios.
What is your view? Join the discussion and share your predictions on the impact of Basel III on the payments market. For more information and related links, please view the article ‘Get Ready for More' in the EPC Newsletter, July 2011.
If you would like to comment on this blog entry or propose a subject for discussion, please identify yourself with your first and last name. Please note that your name will appear next to your comment. Email addresses will not be published.
To receive notification when a new comment is added to this specific discussion, please subscribe to get updates by email (using the "Subscribe" link below) or RSS (using the "RSS Feed" at the top left of the page). (These links are not available on the mobile version of the EPC Website, to subscribe by email or RSS, please visit the standard version of the EPC Website).
10.07.15Update on outcomes following the Euro Retail Payments Board’s third meeting: Instant Payments in Euro, Person-to-Person Mobile Payments, Technical Standards Related to Payment Cards and E-invoicing Payment Issues