April 2013

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As banks prepare for Basel III by raising capital and reducing risk-weighted assets, their decisions affect a wide variety of actors in financial markets. In securities finance, structural changes in bank balance sheet management mean new evaluations of CCPs, indemnification and the cost of collateral management. While some of these issues are relatively minor, others have caused a substantial need for rethinking business models.

In spite of ongoing uncertainties, banks are moving past an assessment of what Basel III means and are working to achieve compliance early. Their motivations are not just to be good corporate citizens; meeting Basel III capital ratios shows clients, counterparties and credit agencies that even with more restrictive risk capital rules, banks are still fiscally strong institutions. But seemingly simple statistics of strength hide the massive financial and organizational changes taking place internally. Statistics also fail to account for how different banks account for risk-weighted assets, with potential implications for regulators and analysts looking to assess how banks will fare with the next major systemic crisis.

This “State of the Nation” report reviews what we know about current bank funding preparations for Basel III on a regional basis and the growing impacts for securities lending, repo and collateral management. We present multiple sources of government documentation as well as data from selected major banks to look at bank risk-weighted averages, capital ratios and thoughts about future planning. We conclude with our analysis of how banks are addressing funding considerations for securities lending and repo activities, often creatively, and how businesses will manage most effectively in the Basel III regulatory environment.

Thsi report should be read by any financial markets professional looking for an up to date review of bank preparations for Basel III and the direction of major topics shaping securities finance.

This report is 42 pages with 25 exhibits.


■ Executive Summary

■ On the Road to Basel III
– The Spread of New Rules

■ US Banks
– Case Studies

■ European Banks
– Case Studies

■ Asian Banks

■ The Apples to Apples Problem in RWA
– Another Proposed Solution

■ Implications for Securities Finance
– CCPs
– Capital Charges for Indemnification
– Demand for Collateral and High Quality Liquid Assets
– Repo Supply
– Regulations Besides Basel III

■ About the Author

■ About Finadium


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