Boston, MA -- (SBWIRE) -- 03/04/2014 -- Prior to the economic downturn, financial services companies primarily employed high financial leverage to increase profitability. However, these companies have now been pressured to deleverage and seek alternative sources of profit by the changed economic picture, a rise in regulatory mediation, and competitive issues. In this altered environment, a new operating model is needed, one rooted in attaining the primary relationship - or at least one of the main relationships - with the customer, recreating trust, and forging active customer relationships. However, the global financial institutions continue to face numerous tests to bring stability back in the financial system and win customer trust.
Basel III regulations aim to overcome the shortcomings of the Basel II regime, which failed to effectively address risk exposures in the banking industry. The new regime proposes stricter capital and liquidity requirements for banks to ensure they remain resilient to financial shocks. It has also upgraded internal risk assessment processes and disclosure requirements to bring more transparency in banks' functioning. However, given the weak condition of banks due to rising regulatory pressures, operating costs and falling profit margins in several key economies such as the US and members of the European Union (EU), the timing of implementation remains uncertain, with migration to minimum capital requirements already delayed until the end of 2018.
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Basel III is a comprehensive risk-based approach on capital adequacy and risk management for the banking industry, and aims to provide better protection to depositors and minimize firm failures. The project was initiated by the Basel Committee on Banking Supervision as an extension of the Basel II regulations to develop a revised set of capital-requirement and risk-management standards. Basel III is expected to enable banks to hold capital against market, credit and operational risks, and will consist of reform guidelines targeted at improving regulatory supervision and risk management for banks.
In addition to Basel III reforms, regions such as America and Europe are registering significant shifts in their regional regulations. These regulatory changes are mostly in line with Basel III, but address domestic circumstances more effectively. In the US, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the Credit Card Accountability Responsibility and Disclosure Act, among others, are expected to push banks to pay attention to the quality of their capital, lending practices and consumer protection.
Companies Mentioned in this Report: Capital One Bank, Discover Bank, American Express, Citibank Indonesia, Barclays, Bank of America, JPMorgan Chase, Citigroup, Deutsche Bank, Credit Suisse, Royal Bank of Scotland (RBS), UBS AG, Rabobank
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