Brazil: Rousseff’s water torture

Brazil: Rousseff’s water torture

The call to protect dwindling reservoirs

Inside Ukraine's economic crisis

Inside Ukraine's economic crisis

Euromoney penetrates the Kiev ministries

Friday, July 27, 2012

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Basel III? We don't need no Basel III

by Nathan Collins, Euromoney Skew

In many emerging markets Basel 2.5, let alone Basel III, is something of a distant dream.


While Basel III is so in this season, if you start looking at emerging markets you’re lucky to find many that have final rules in force for Basel 2.5, let alone Basel III. According to a survey from the Bank for International Settlements, steps have barely began in the majority of emerging markets.  
 

Most obviously, Croatia is going to need to get its act together. As it stands the country hasn’t published draft regulations on any part of Basel III, but it’s going to need to speed up the process. The country has to implement the rules as part of the regulatory package that will come along with accession to the EU, expected to happen on July 1st 2013.

 
 Croatia should implement Basel III in less than a year's time

Of course, it isn’t as simple as simply laying down the law for the local banks. Banks and central banks, especially in emerging markets, face strenuous challenges when implementing these regulations given different internal accounting norms and lack of technical capacity, let alone evolving disclosure standards and definitions of systemic risk.

Or , in the words of MRV associates:



“At many emerging market banks, risk measurement and sometimes even risk identification, remain key challenges. ... Even when banks’ risk management personnel understand models such as those based on external or internal ratings, they either lack the public ratings for some of their assets or for assets that are not rated, they lack a solid methodology to create their own internal ratings. Credit risk models such as Credit Value-at-Risk, not to mention those based on Black- Scholes-Merton, are practically unheard of in emerging market banks.”

...

Moreover, many regulators continue to hire mostly accountants and economists into their examiners pool; whilst the skills that these individuals bring are important, sorely lacking are skills in valuation, risk management, and modeling. Importantly the education in many of these countries is still the type where students focus mostly on one subject for 4-6 years, but they are never taught to have a more open minded approach to analysis and to be able to detect the interconnectedness of risks across different divisions of a bank, not to mention within an entire financial system.”

 

This might come as a surprise:

 

Of course, if Basel III doesn't turn out to be the be-all and end-all of bank safety, it might be a good thing to have a safety net of countries that never got around to introducing it.