KPMG Reports Increase in Banking Regulation Drives Profits to ‘systemic Reduction’

Lucas Gilmore, “Big 4″ observer
November 23, 2010 /

Increase in banking regulation will push bank profits to a “systemic reduction” as enforcement of the changes in legislation is likely to put pressure on the liquidity of most banks, a new report from KPMG revealed.

Enforcement of the Basel III requirements poses a demand for liquidity buffers to escalate to a size threefold its present value as liquidity costs and depress margins are necessarily increased alongside.

KPMG elaborated that revenues in government taxes, financial services employment, and income from pension funds are the areas that will likely see the repercussions of the systemic reduction in bank profits.

Giles Williams, partner in KPMG’s Financial Regulation practice, acknowledged the challenges posed by changes in banking regulation. He said banks in Europe and Americas in particular are affected by the Basel III implementation. The pending stricter supervision brought about by these banking regulation changes will necessarily boost the significance of additional regulatory requirements that the banks must adhere to, Williams added.

Williams said there seems to be an unending “list of challenges” coming from the changes in banking regulation, including the additional regulatory requirements, modifications in the rules of traded markets that may change how transactions are carried out, and quick reforms in the requirements for accounting and disclosures, among others.

Williams expressed his doubt that the signs coming from the G20 promising to create an arena for level playing could turn out the way they intended to be. He said the unpredictability of the changes in banking regulation may not stop any time soon.

Regulatory Pressure Index, which is featured in the Evolving Bank Regulation report, has predicted that the bank profits in the US and Europe would sustain from the “systemic reduction” due to the increase in banking regulation.


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