How Basel III threatens small businesses

  • Basel III requires an increase in the size of banks' equity relative to their loans and a more formal assessment of risk. It is built on the same foundations as Basel I and II. The reasons why those initiatives failed may well apply also to Basel III, not least because the adjusment of assets for risk cannot be conducted with any certainty.
  • Soverign debts once considered safe are not necessarily safe any longer.
  • The rules agreed in September 2010 are to be phased in between 2014 and 2019 to give banks time to adjust. Most of the capital adjustment will come from banks lending less but better and with increased margins - that is, higher interest rates to customers.
  • Big companies will be able to shop around within the competitive international markets. However, in a situation where five big banks dominate the UK market, Britain's smal and medium-sized enterprises (SMEs) will be hit both by the reduced aviailability of loans and by higher interest rates.
  • Since SMEs drive the UK economy, the consequence of Basel III is negative for the UK.

Read the full briefing paper here.