Tuesday, April 05, 2011
On 21 March, Nyenrode’s Governance Academy (Toezichtacademie) held a seminar on the implications of the Basel III accord for the financial sector and financial markets. Under the chairmanship of Prof. Dr. Paul Hilbers, Professor of Governance of Financial Institutions, four speakers discussed the consequences of the new Basel accord from different perspectives.
On 21 March, Nyenrode’s Governance Academy (Toezichtacademie) held a seminar on the implications of the Basel III accord for the financial sector and financial markets. Under the chairmanship of Prof. Dr. Paul Hilbers, Professor of Governance of Financial Institutions, four speakers discussed the consequences of the new Basel accord from different perspectives.
The recent financial crisis revealed important gaps in the worldwide supervisory structure and highlighted the need for new forms of regulation. For that reason, a new Basel accord (Basel III) was agreed, tightening the requirements for the equity capital of banks and bringing into effect new regulations for banks’ liquidity and leverage.
Perspective of the financial markets
The first speaker, Simon Meijlink (Oxyor and Fellow of Nyenrode), spoke about the consequences of Basel III from the perspective of the financial markets. Meijlink was positive about the philosophy behind Basel III, such as restricting leverage in the banking world and building up buffers when times are good. On the other hand, he warned that the new Basel accord may lead to an increasing number of bank activities and risks shifting to the so-called ‘shadow’ banking system. By extension, Meijlink predicted, banks may tend to relocate their offices to regulatory havens. In his opinion, it is therefore enormously important to maintain a level playing field.
The first speaker, Simon Meijlink (Oxyor and Fellow of Nyenrode), spoke about the consequences of Basel III from the perspective of the financial markets. Meijlink was positive about the philosophy behind Basel III, such as restricting leverage in the banking world and building up buffers when times are good. On the other hand, he warned that the new Basel accord may lead to an increasing number of bank activities and risks shifting to the so-called ‘shadow’ banking system. By extension, Meijlink predicted, banks may tend to relocate their offices to regulatory havens. In his opinion, it is therefore enormously important to maintain a level playing field.
Rewards policy of banks not viewed in isolation
Janet Visbeen (PricewaterhouseCoopers) then discussed the consequences of Basel III on the rewards policy of banks. “A simple answer to a difficult question” is what Visbeen often encounters in practice. The rewards policy is, in fact, a difficult question whereby the debate has to focus less on the amount of the reward and more on exactly what is being rewarded and the resulting incentives. Visbeen therefore emphasized that the rewards policy must not be viewed in isolation. Rather, it should form part of a wider process of change in the field of culture and behavior in the financial sector.
Janet Visbeen (PricewaterhouseCoopers) then discussed the consequences of Basel III on the rewards policy of banks. “A simple answer to a difficult question” is what Visbeen often encounters in practice. The rewards policy is, in fact, a difficult question whereby the debate has to focus less on the amount of the reward and more on exactly what is being rewarded and the resulting incentives. Visbeen therefore emphasized that the rewards policy must not be viewed in isolation. Rather, it should form part of a wider process of change in the field of culture and behavior in the financial sector.
Banks make big stridesAfter the break, Boele Staal, the Chairman of the Dutch Banking Association, took the stage to speak about Basel III from the point of view of the banking sector. Staal admitted that banks had lost sight of their public function and failed to recognize certain risks prior to the crisis. However, he emphasized that since then banks have taken major strides in the right direction. Staal pointed out the high level of compliance with the Bank Code and the increased (quality of the) buffers in the Dutch banking sector. Finally, Staal raised the question of how effective the transitional regime of Basel III will be in practice, given that investors will push the banks to comply quickly with the accord’s new capital requirements.
Phased introduction limits consequences for economic growth
The final speaker, Nout Wellink (President of De Nederlandsche Bank and Chairman of the Basel Committee), discussed the Basel III process from the perspective of the regulator. Major gaps in the financial system had been brought to light during the crisis and Wellink emphasized that the intention of Basel III was to close these gaps and ensure that crises will occur with less frequency and intensity in the future. Wellink also pointed out the speed with which Basel III had been arrived at. In fact, mainly thanks to political support from the G20, it had been possible to complete the accord in about 2 years. Wellink also noted that Basel III, due to its phased introduction, will have only limited effects on economic growth. On the other hand, Wellink foresees that the business models of banks will be modified in some respects. “But that is also intended to prevent excessive risks of the type that were encountered during the crisis”, Wellink stated.
The final speaker, Nout Wellink (President of De Nederlandsche Bank and Chairman of the Basel Committee), discussed the Basel III process from the perspective of the regulator. Major gaps in the financial system had been brought to light during the crisis and Wellink emphasized that the intention of Basel III was to close these gaps and ensure that crises will occur with less frequency and intensity in the future. Wellink also pointed out the speed with which Basel III had been arrived at. In fact, mainly thanks to political support from the G20, it had been possible to complete the accord in about 2 years. Wellink also noted that Basel III, due to its phased introduction, will have only limited effects on economic growth. On the other hand, Wellink foresees that the business models of banks will be modified in some respects. “But that is also intended to prevent excessive risks of the type that were encountered during the crisis”, Wellink stated.
Panel DiscussionThe seminar concluded with a panel discussion that, in addition to Wellink, Staal and Meijlink, included Prof. Dr. Leen Paape, the Dean of Nyenrode’s School of Accountancy & Controlling. From among the audience, the opinion was put forward that the distance between political institutions and the private sector (specifically the financial sector) has increased in recent years. There was also discussion regarding the causes of the financial crisis. In this discussion, it was emphasized that the banking sector and regulators should keep an eye on developments in other sectors as well, such as the housing market and commercial real estate sector.
Dutch version of the article:
Seminar over de implicaties van Bazel III.pdf
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