August 30, 2023

Basel III Endgame – What it Means for the Capital Markets

By Tier1

What is Basel III Endgame?

Basel III is a series of international regulatory standards that were introduced as a result of the 2007-2009 financial crisis. In 2017, the final iteration of these standards or “endgame” was agreed upon by The Basel Committee on Banking Supervision, a panel formed by the Bank for International Settlements (BIS) in Basel, Switzerland.

On July 27th, regulators including the Federal Reserve and FDIC introduced a set of proposals that would impose stricter capital requirements upon banks aimed at adhering to several of the standards laid out in Basel III. The largest of these proposals would be an increase in capital requirements for banks with assets over $100 million. According to American Banker, The FDIC estimates that the proposal would increase common equity tier one capital requirements by 16% for bank holding companies and 9% for other insured depository institutions.

Now, how will this affect capital markets?


What Basel III Endgame means for the capital markets

While these measures are designed to increase resiliency and prevent deposit runs on banks (like we saw with Silicon Valley Bank and Signature earlier this year), the main concern among investment bankers is the increased difficulty and cost associated with acquiring capital under these regulations.

Strengthened Financial Institutions

Basel III's capital and liquidity requirements compel banks to hold higher levels of capital as a buffer against potential losses. While this can limit the amount of leverage banks can use, it could also decrease spending and technology investments. Limiting the toolset employees use and rely on for efficiency, productivity, and curating their competitive edge.

Impact on Banking Operations

The stricter capital requirements might prompt banks to adjust their business strategies and operations. This could have knock-on effects on the types of financial products and instruments available in the capital markets.

So, whether it is the way business is conducted or the products and services being sold within those businesses, these shifts will have lasting impacts that resonate all the way down to end consumers.

Global Consistency and Competition

Basel III's implementation aims to create a more consistent regulatory framework globally.

Undoubtedly, a renewed focus on consistency always leads to the introduction or re-introduction of rules, guidelines, and regulations. Requiring new bandwidth and capacity from technology and people to monitor, secure, and communicate correctly.

Key considerations for Basel III Endgame:

  • Credit card impact will be driven by customer behavior
  • Real estate exposure may receive relief
  • Corporate impact will be driven by counterparty type
  • New exposure classes will require system changes
  • Impact will vary based upon business model


How can technology help you stay ahead of the curve?

Technology can play a significant role in facilitating the implementation of Basel III regulations. The complex nature of these regulations, which involve stricter risk management and reporting standards, can be managed more efficiently with the help of new technological solutions or the re-invigoration of already owned assets.

For instance, Tier1’s client relationship management software can help track clients by counterparty type -- segmenting and summarizing exposure classifications.

This emphasis on the tracking and organization of internal and external client related activity, fuels KYC (Know Your Customer) data acquisition.

While they are not directly interconnected, both KYC requirements and Basel III regulations contribute to enhancing the overall stability, transparency, and integrity of the financial firms.

A CRM is often seen as a lone source of truth, and Tier 1’s data integrations, persona driven workflows, mobility, and email integrations further fuel collective data ingestion. Improving the tracking, and the validation of outreach, client activities, segmentation, coverage and preference management and the related supervisory dashboard reporting.

Connecting the dots between KYC and Basel III through a CRM lens can allow for a narrower focus to aid in the broader aspects of risk management and capital adequacy.

  • Risk Management and AML
  • Customer Due Diligence
  • Operational and Reputational Risk
  • Data Quality and Reporting
  • Customer Segmentation
  • Enhanced Due Diligence
  • Customer Relationship Monitoring

Using a 3rd-party data source, firms can easily integrate credit risk data associated with banks, providing a better idea of where you are most likely to gain capital. This way, you can organize your outreach lists accordingly, increasing your odds of successfully minimizing your capital requirements and improving the overall profitability and performance of the business.

Outside of our CRMs native functionality, our professional services team has set up custom integrations for clients to bring a wide variety of financial data sets into their CRM view. Which ends the need to keep switching between browser tabs to get a full picture.

Collectively, these practices and tools work in harmony to address regulatory efforts aiming to enhance your firm’s adherence, stability, transparency, and resilience by addressing various dimensions of risk and compliance.

Looking for a CRM solution that gives you the full scope of what you need to know before you call? Contact our team to learn more.

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