Basel III and regional financial integration in emerging Europe An overview of key issues

We review the likely impact of Basel III regulation within the European Union’s new member states, based on system-wide financial stability indicators and responses to consultation processes from national central banks and banking groups. Fresh regulations on liquidity ratios are likely to have the most severe impact on subsidiary funding relationships with a typically large reliance on wholesale markets. Provisions on capital quality and coverage are unlikely to represent significant impediments to existing business models but could have an impact on the region should excess capital coverage be reduced to the benefit of parents. Given the benefits from financial integration in terms of growth and financial stability, application of Basel III within emerging Europe should be based on sound coordination of prudential regulation and implementation, including in measures directed at systemic risks.