Geneva: New Basel III bank capital rules encourage a back-to-basics approach for banking and could therefore see those in major emerging countries benefit most from the reform, analysts said.
"The new rules will force banks to go back to simplicity, to the core business which would benefit banks that were respecting the core business in the first place," said Arturo Bris, professor at the business school IMD.
He underlined that banks in developing markets tend to adopt basic banking — deposits and loans — unlike western investment-oriented banks which have developed complex derivative products that were blamed for setting off the global financial crisis.
Regulators hardened their resolve for reforms to clamp down on risky trading after the world was sent to the brink of economic meltdown brought by the collapse of US investment bank Lehman Brothers.
Complex instruments
Like many of its counterparts, Lehman Brothers had created ever-more complex financial instruments in its drive for profits, among them derivatives of "subprime" home loans, which eventually led to its demise.
The failure of such once haughty Wall Street banks and some European counterparts contrasted sharply with emerging markets banks which were able to weather the crisis largely unscathed due to their conservative business model.
It also precipitated a sea change on the decision-making stage. For the first time, developing countries like India, China and Brazil were asked to participate in negotiations for new international banking regulations.
Regulators from 27 economies agreed on September 12 on the so-called Basel III reforms, which would require banks to raise their high quality Tier One capital from 2.0 per cent to 4.5 per cent of assets. An additional buffer was also imposed, bringing the total capital required to 7.0 per cent by 2019.
