Banking On It

The implementation of Basel III capital requirements is expected to push the cost of credit higher and make banks a little choosier about which companies they offer credit. Meanwhile, Basel III’s liquidity coverage ratio, which evaluates a bank’s ability to fund itself over a 30-day period of financial stress, puts a premium on companies’ operational balances—such as those associated with payroll or accounts payable—on the grounds that such deposits will be stickier. Short-term deposits that are not linked to operations will become less attractive to banks, since banks will be required to hold more reserves against those deposits. And Basel III’s leverage ratio could limit the total amount of lending banks are able to do.

Different countries will implement the Basel III capital requirements in different timeframes; in the United States, the rules start to kick in at the beginning of next year.