Most APAC banks say Basel III has significant impact on capital requirements

Each country is introducing the regulation differently.

FICO has found more than 60 percent of financial institutions studied believe stress testing related to new regulations is a “core risk”.

According to a release from FICO, the report finds that the cumulative capital requirements among banks in Europe and the United States are on pace to increase more than $2 trillion from pre-financial-crisis levels due to new regulations. That finding is included in a report on the global banking sector produced jointly by FICO and Chartis Research.

FICO and Chartis found that, among banks studied that 83 percent of banks in Asia Pacific and 66 percent of European banks said Basel 3 is impacting their capital adequacy methods and practices “to a great extent.”

Here's more from FICO:

While fewer banks in the U.S. felt that way (33 percent), 69 percent of U.S. banks said Dodd-Frank was impacting their capital adequacy methods and practices.

Moreover, 70 percent of the banks studied have implemented policies and rules to separate model development and model validation. This enables an independent review of the design and performance of models used in stress testing for capital adequacy.

But even with some positive steps being taken regarding model risk management, fewer than 14 percent of banks studied have implemented more than limited internal audits.

Dan McConaghy continued, “In Asia Pacific, there is a focus on Basel 3 because each country is introducing the regulation in different ways due to varying local challenges.

The capital requirements are not really the issue, as when Basel 3 was conceived in response to the 2008 financial crisis, banks in Asia Pacific were in a healthier state than other parts of the world due to lessons learnt from the 1997 Asian crisis.

Rather, our clients are seeking greater efficiency, ways to increase transparency, strengthen risk management, and find smarter approaches to meeting the heightened capital adequacy requirements.”