New proposals to ensure that banks hold sufficient capital to avoid another credit crisis are not enough to prevent another collapse, according to PwC. Experts at the Big Four auditor have warned that, two years after the failure of Lehman Brothers, the Basel III banking proposals still leave much for regulators and banks to do in order to achieve financial stability.
Although PwC welcomed the proposals, it pointed out that regulators have yet to establish details on calibration and transition-feedback mechanisms, and clarify the operation of capital buffers. There are inherent dangers in rule-driven capital ratios that need to be addressed and many banks will find the liquidity requirements at least as challenging as the capital requirements, it added.
"This is a big step towards reducing the risk of another severe crisis, but for banks and regulators to turn their attention elsewhere now would be perilous," said Patrick Fell, director at PwC. "The to-do list includes improving trade settlement and clearing, and limiting inter-bank exposure to reduce the domino effect. Another key challenge is to develop quick, effective and efficient approaches to deal with failing banks."
PwC approved of the way in which the proposals place responsibility on each bank's board and require supervisors to judge management assessments. This needs a consistent international approach as well as...