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Living with Basel III - The Impact on the Payments Market Viewed 6475 times

09-08-2011 By Ruth Wandhöfer, Member of the EPC Plenary and Chair of the EPC Information Security Support Group

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.




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Previous entries

07.08.15Summer Reading: Results of Latest EPC Poll Reveal That Instant Payments are Most Likely to Trigger the Next Wave of Innovation

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

18.06.15PSD2: Almost final – a state of play

01.06.15Friendly Reminder: Suggestions for Changes to SEPA Credit Transfer and SEPA Direct Debit Rulebooks Are Invited by 31 December 2015

08.05.15Fresh Perspectives and New Technologies Shaping Innovation in Payments: a Closer Look at the U.S., Australia and Europe

17.04.15EPC Calls for Candidates Seeking Appointment to the EPC Scheme End-User Forum or the EPC Scheme Technical Forum. Applications are Invited by 8 May 2015

02.04.15FutureID - Shaping the Future of Electronic Identity

10.03.15EPC and Cards Stakeholders Group Release Version 7.05 of the SEPA Cards Standardisation Volume for Public Consultation – All Interested Parties are Invited to Provide Feedback by 5 June 2015

26.02.15SEPA Compliance in the Euro Area: Get Ready for February 2016. Act Now

10.02.15European Payments Council 2.0: the EPC Has Adapted its Structure to Further Enhance Governance and Stakeholder Involvement

26.01.15EPC Publishes the SEPA Direct Debit (SDD) Core Rulebook Version 9.0 and SDD Business to Business Rulebook Version 7.0 to Take Effect in November 2016

12.01.15European Union Regulatory Initiatives Impacting the Security of Euro Payments: the 2015 Outlook

09.12.14Update on Work Items Addressed by the Euro Retail Payments Board (ERPB) Chaired by the European Central Bank: SEPA Credit Transfer, SEPA Direct Debit, Instant and Mobile Payments

25.11.14EPC Publishes Updated Versions of the SEPA Credit Transfer and SEPA Direct Debit Rulebooks to Take Effect in November 2015

06.11.14Next Steps to Create the Digital Single Market: E-invoicing Continues to Grow Spurred on by Public Policy and the Accelerating Dynamics of E-business

23.10.14The New European Commission: a Closer Look at President Juncker’s Vision for the EU Internal Market and Economic and Monetary Union

30.09.14The New European Commission is Expected to Take Office on 1 November 2014. A Recap of the Role of the European Commission in the Evolution of SEPA Credit Transfer and SEPA Direct Debit

18.09.14Next Steps in the Area of Online Payments: Is Europe Ready for e-Identity?

28.08.14Learn More About Work Items Related to SEPA Credit Transfer and SEPA Direct Debit to be Addressed by the New Euro Retail Payments Board (ERPB) Chaired by the European Central Bank

07.08.14Summer Reading: Food for Thought on the Future of European Payments, Contributed to the EPC Newsletter by Experts Representing Various Market Segments