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FT.com / Comment / Opinion - Basel III is bad news for emerging economies
... as Basel III staggers towards the finishing line at November's Group of 20 leading economies meeting in Seoul, it has become clear that the needs of emerging markets have been ignored. 2004's Basel II proved fiendishly difficult to apply in conditions where even large corporations lack credit ratings; where the data to build credit scoring systems barely exists; and where there are few institutional investors who might actually read public disclosures. Far from fixing this, Basel III makes it even worse.
Basel III poses two fundamental challenges for emerging markets. The first concerns deadlines. After the banking industry stoked fears that Basel III's requirement to raise more capital could choke off nascent economic recovery, an Augustinian compromise was reached... As a result, implementation is now stretched until the end of this decade.

Yet emerging markets need to operate on a different timetable... However, Basel III's transition period means that no emerging economy is likely to want to be the first mover. Bankers in developing countries will argue with some justification that they should not be disadvantaged relative to competitors in advanced economies.

The second challenge is whether it makes sense for emerging market banks to be more highly capitalised and liquid than those in wealthier countries... But, as the tier 1 ratio rises, should emerging economies ratchet up their own requirements just to maintain an emerging market premium?

"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Fri Oct 15th, 2010 at 03:29:22 AM EST
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