Deutsche Bank’s Global Transaction Banking is committed to raising awareness of the challenges and opportunities that Basel III will bring when it is eventually implemented.
The onset of this directive, however, is having a significant impact on the banking landscape, and will continue to change the way the market looks.
Lothar Meenen, Deutsche Bank’s Head of Trade Finance/Cash Management Corporates for Germany, believes the Bank can emerge from the post-Basel III world a stronger institution. He explains: “More and more global players are moving out of specific products or markets and clients need to be aware of this change. In this environment, clients should be aware that Deutsche Bank remains committed to its business, which is good news for our clients, especially in Europe.”
Meenen says the lessons from the financial crisis in 2008 are still being absorbed and, as a result, regulation is now at the top of everyone’s agenda.
Basel III will present challenges, however, notably in the Trade Finance arena. The proposals around the Credit Conversion Factor (CCF) of the Leverage Ratio, which weights the risk of Trade Finance items the same as some historically riskier products, will definitely be a hurdle, but Meenen is confident that the real risk profile of Trade Finance will be acknowledged and the proposal will be diluted to more favourable levels.
Nevertheless, Basel III will not only impact the Trade Finance part of GTB but also Cash Management. For instance, changes to the liquidity coverage ratio will have an effect on operational deposits, although the now intended 5% for outflows is more acceptable than the originally-proposed 10%.
The banking industry will continue to change because regulatory changes will not be finished with Basel III. New regulations are already underway. Take securitisation, for example. “This might be affected by upcoming regulations,” he says. “It is under discussion to increase the risk weighted asset consumption for certain complex securitisations, requiring banks to hold more capital against securitisation exposures.”
While Basel III will undoubtedly impact the shape of banks and the industry as a whole, Meenen talks of the “three Cs” - Cost, Capital and Culture as topics to be considered. “Taken everything into account we are in a game-changing landscape. However, we have to be prepared for change, ensure we are first in the market and be flexible enough to ride the waves of regulation,” he insists.
But Basel III may deliver some disadvantages for banks in Europe if the implementation is not consistent worldwide. Explains Meenen: “It’s important that we have a level playing field. If the US or some of the Asian countries do not adopt Basel III within the same timeframe - and therefore do not have the same capital constraints - in Europe we will lose some competitiveness. This is something we should be aware of.”
Regardless of competition issues, Deutsche Bank also has to make sure its clients know how to read Basel III. “We have not been slow in coming forward with our clients, providing our interpretations of the rules and making recommendations. We also let them know that Deutsche Bank will comply with Basel III and meet the necessary capital ratios. It’s vital they are confident that Deutsche Bank is well positioned.”
Clients’ awareness of Deutsche’s strength - and its status as being systemically important - has fuelled a “flight to quality” that Meenen anticipates will continue after Basel III, making Deutsche a bank of choice.
So what is Meenen telling clients at the moment? “We are suggesting they start to look at diversifying their funding sources and develop a good view on who they want to bank with. Basel III is going to have a shake-out effect on our industry and they will need a bank that’s robust, well-funded and a global player. Someone like Deutsche Bank.”
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