What is Basel III and how will it affect U.S. bank lending in coming years? Named after its meeting place in Basel, Switzerland, the Basel Committee on Banking Supervision, is the International oversight body for bank regulations. The Committee recently passed a new “accord” or regulation called the Basel III, which could seriously affect the future of U.S. banks. Basel III is the third in a series of accords for banking supervision that has was passed in response to the banking meltdown of 2008 and 2009.
Although many will strongly argue that banks should indeed have higher standards imposed for liquidity and leverage, opponents of the Basel III have said that it will put many of the smaller, local banks out of business. Either way, this will certainly not stimulate U.S. banks to loosen up lending in the next several years, given that they must comply with much higher liquidity and leverage standards by as soon as 2015.
However, the Basel III standards were recently softened a bit in response to bank lobbyists. The response to this news temporarily boosted bank stock prices at the start of 2013. Banks still must have a stock of easy to sell assets to meet sudden demands during a 30 day market crisis. But the Committee has recently changed what can be counted as an “easy to sell” asset, allowing mortgage-back securities and other assets to be included in this mix. They’ve also loosened the liquidity requirements on big banks that lend primarily to big corporations.
Although the Basel III standards have been softened this month, I believe that lending in the U.S. will continue to remain tight over the next several years. As banks make efforts to comply with Basel III by 2015, they will be looking to deleverage their balance sheets, not likely to renew existing loans to commercial borrowers. And in issuing new debt in coming years, banks will likely cherry-pick which loans to do, only selecting the best loans.
But what should borrowers do in response to this potential threat to bank lending? Get a head start on your real estate financing needs for 2013 and be prepared to find multiple options for financing, including private money loans. Even if banks continue to lend more freely in coming years, many of them will likely raise their underwriting standards even higher to only qualify the best loans.
Corey Curwick Dutton, MBA. Real Estate Lender for Private Money Utah
Corey Ann Curwick is a private money consultant for Private Money Utah, a real estate lender based in Salt Lake City, Utah. Corey is from Austin, Texas and is an MBA Graduate of the prestigious Thunderbird School of International Management. An authority in the private money lending industry, Corey provides educational resources for investors who use hard money loans in their real estate investing activities. Before she joined Private Money Utah, Corey was the President of an investment education company in Utah called Bray-Conn Investments LLC. In this role, Corey organized classes, which taught investors how to invest in five asset classes. In her free time, Corey enjoys skiing, snowboarding, and mountain biking in the beautiful Utah outdoors.