Asian regulators need to focus on a much wider range of policy tools than just implementing Basel III requirements.
Asian banks are well capitalized and many Asian jurisdictions have moved beyond Basel III - with higher capital requirements and ahead of the January 2015 deadline. Indeed, nearly half of all jurisdictions currently implementing Basel III are Asian. Adhering to Basel III ahead of others raises questions about a level playing field for Asian banks, especially since Basel III was largely designed to address the crisis-related problems of the more advanced and sophisticated financial markets. Asian banks are still retail deposit-based, and less reliant on wholesale funding. Many Basel III rules on liquidity, risk weights and overall leverage ratios are still being finalized, and the real effects of Basel III on Asian bank lending could be clouded by the current environment of ample global liquidity. As growth expands, the need for additional capital increases could be substantial. Hence, Asian policymakers need to balance growth with regulation in a judicious manner without negative implications on Asian systemic stability. This requires:
The aim is not to dilute prudential regulations, but to ensure that the complex Basel III regulations are fit for purpose, and commensurate with the different stages of development and risks in Asia.
Disclaimer: The views expressed in this report are those of the author and do not necessarily reflect those of the Fung Global Institute. The author is solely responsible for any errors or omissions.