When it comes to the impact of new banking industry regulatory measures, Basel III perhaps leads the pack. Regulators and governments around the world have begun to institute a series of measures intended to make the global financial system more robust. To date, 18 countries have final Basel III rules in force. Separately, the European Union has mandated implementation for all member countries, of which 9 have completed. At the same time, the Basel Committee continues to work on liquidity risk monitoring and operational risk capital requirements, which will be phased in over the next half decade or so.

One of the principle objectives of Basel III is to increase the amount of capital that banks must hold relative to their assets. Additionally, banks will need to hold a certain percentage of those assets in high quality, liquid categories. These capital and liquidity requirements are intended to strengthen the overall banking system to withstand a possible future market stress event.

The Basel III measures that are already in place have major implications for corporate liquidity management and short-term investment strategies. Deposits which are linked to core underlying cash management operating activity will become more favorable from a regulatory perspective, whereas non-operating cash will be viewed by banks as less favorable in an increasingly constrained balance sheet environment.