Basel III: An Update
by Guinandra Jatikusumo
It has been approximately a semester since I left my internship at the Central Bank of Indonesia’s Monetary Policy Group, in which I worked closely with senior economists on developing a proxy for measuring risk levels of Indonesia’s banking system. The discussion on the developments of Basel III was a ritual every morning, and I am pretty sure it is still today. I remember looking at the following table and wondering what will happen as members of the Bank of International Settlements gradually establishes each of the framework’s regulatory points:
As I perused the financial statements I was assigned to, I would ask myself: “How will banks respond to the increasingly ‘restrictive’ regulation proposed by the central banks involved in the formulation of Basel III?” As the year of 2013 ended, some answers have emerged.
In Indonesia, at least an issue arose due to Bank Indonesia’s minimum Capital Adequacy Ratio rule imposed on several domestic banks. Such particular rule, I believe, is highly influenced by Basel III. This has led to an additional capital injection–or colloquially, a bailout–of Bank Mutiara, after its controversial Century days. Read more here. Internationally, investment banks and regulators have constantly revised the terms of the rule to reach a point where profits and risks balance. Quoting a banking professional in an article, the concession has been a ‘win for the [financial services] industry.’ Read more here.