Basel 3 – What It Means For UK Businesses

Basel Map

Basel III

For most people Basel will only ever be a town in Switzerland, however in the financial world the accords signed at Basel are for more reaching.

What Is Basel 3?

In short terms, there were several accords signed at Basel which have been introduced gradually. The aim was to ensure less banks failed and there was a more global measure of how much capital banks held, and how fit they were in case of losses.

One of the main outcomes of the first two agreements was that loan risk was categorised and as it increased, or lessened, then the lending bank would have to hold more, or less, cash in reserve.

This is why you often pay more for an overdraft and less for a mortgage, because the risk of losing your money changes and the level of cash the lending bank needs to hold for each product varies.

The level of cash each bank holds is commonly referred to as ‘capitalised’ or ‘capitalisation’.

What Does It Mean For UK Businesses?

The concern is that it will see banks become more cautious about who they lend to, or want more security to back up new loans. In effect, either route would see business finance become more difficult.

The counter argument here is that not all UK Banks are ‘under capitalised’. Santander UK and HSBC have been given a clean bill of health.

What remains to be seen is whether this will encourage those banks to lend and take advantage of their competitions distractions, or whether they continue to sit pretty and maintain the debt books they have?

What Next?

What all this will mean is that UK businesses need to spend more time on their proposals when looking to borrow. The easy answer here is to simply give us a call and we will talk you through everything.

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