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Just as 2010 approached its last few months, the Bank for International Settlements (BIS) decided that it was about time that it published its latest international regulatory framework for banks: BASEL III. According to BIS’s website, BASEL III is a comprehensive set of reform measures which are deemed necessary by the Basel Committee on Banking Supervision.

In addition to enforcing the regulation, supervision and risk management of the banking sector, BASEL III was created to:

• Enable the banking sector to recover from shocks caused by financial and economic stress
• Boost banks’ risk management and governance capabilities
• Effectively manage banks’ disclosures

The New Rules Added to BASEL III

In addition to the same rules of BASEL II, BASEL III comes with a few new rules –

• All banks should adjust their Tier 1 leverage ratio to be 3% at the very least.
• The BIS will start monitoring the leverage ratio starting January 1^st, 2011. However, the ratio will be tested from January 1^st, 2013 and last until January 1^st, 2017. Banks should make sure of disclosing the ratio on January 1^st, 2015.
• Banks will have until 2015 to get their leverage ratios sorted out before they are provided to the public. However, there is a chance that this may change if the rules are unanimously voted as too strict. This is why final rules will finally be set on January 1^st, 2018.

Any bank which fails to meet the requirements set by the BASEL III framework will be banned from paying dividends to shareholders until it produces an accurate balance sheet. Thus, banks with professionals and officers with Basel II knowledge and experience need to get their staff to start studying the differences between BASEL III and its predecessors. This way, banks can save themselves from being punished by the BIS.

Further reading: Corporate Governance | Audit | Performance Improvement