Since the defeat of Swiss bank Credit Suisse and its forced marriage to its colleague UBS for more than 3 billion euros to save it, France has been trying to reassure markets in particular by brandishing the Basel III ‘shield’. Thus, Bruno Le Maire, Minister of the Economy, said on Monday morning on the BFMTV microphone that the hexagonal banks are solid. Because? Because Basel III.
French banks even have, according to him, the “strictest rules in the world.”
It was in 2010 in the Swiss city of Basel on the banks of the Rhine where an international agreement was signed in order to strengthen the soundness of the banking system and prevent a new crisis like that of subprime.
The agreement is called Basel III, logically following Basel I (1988) and Basel II (2004) which were not enough to prevent the financial crisis of 2008 which, at the time, caused the collapse of the world stock market and hit the economy. : unemployment, bankruptcies, deterioration of public finances, debts… Never again, said the States. Thus Basel III was born.
The Basel III scheme
The agreement fills “a series of shortcomings in the prudential framework that existed before the crisis and lays the regulatory foundations for a resilient banking system, capable of supporting the real economy,” explains the Basel III Committee made up of bank supervisors from 28 countries.
Thanks to Basel III, large banks are now supposed to be more resilient and able to more easily adapt to adverse market conditions. In particular, the new regulations oblige these establishments to reinforce the level and quality of their own funds, essential to face possible risks such as non-payment or loss of value of their assets.
Its minimum capital ratio called ‘hard’, called Core Tier 1, has been raised while a ‘safety cushion’ has been established so that banks can resort to it in case of difficulty. To this, entities must reserve in good times to be able, conversely, to dispose of this cash in the event of a recession.
In addition, the new ratios require them to maintain sufficient liquidity at all times, while a leverage ratio is introduced which should allow them to always be able to pay what they owe.
The banking sector is complex, as is Basel III. In short, if the banks are attacked tomorrow, they will have more soldiers and a better defense, and therefore they will be able to erase greater losses and hold out better against the enemy.
Source: BFM TV
