In the language of psychology, it would be called the start of schizophrenia. For some time now, we have been hearing voices. They reiterate fears about an overly complicated prudential system which has lost sight of its objectives in a mass of detail that few can deal with.
Small insurers and captive companies are above all among those caught in the coils of Basle III. To break free, the largest of them have had to bring in wheelbarrows full of advisers. The probability was, and remains, very strong, that these fatly rewarded consultants have rapidly become the only ones who understand the new mechanisms. Pity the poor directors with policies and strategic directions to define…in such a context and with such a lack of real intelligence.
To ease the situation, it has been decided that the liquidity coverage ratio (LCR) will not apply completely for another four years. Banks must reach 60 percent of their LCR in 2015, 10 percent more in each of the following years and 100 percent only in 2019. This gradual increase will soften the blow of the €1800 billion that it would have been necessary for them to raise at one time to respond to the Basle III criteria, which would also have created a major upset in the financial markets.
Let us hope that by 2019, we will have a better perception of the multiple faults in the system and that a ‘light’ version of the regulations, manageable and understandable for everyone, will soon emerge.
To a certain extent, Solvency II is subject to the same failings: exorbitant financial requirements and complications unrelated to the rules to be applied. Those with the most to complain about are insureds who are confronted with two serious problems simultaneously. First there is the disappearance of the smallest insurers, including those called “niche”, and second, a fate less clear for their captives. The consequences are an almost inevitable increase in premiums, even when there has been no intrinsic change in the risks. To change what will happen, it will be necessary to juggle with the influence, much too heavy, of certain lobbies. Only time will tell whether it can be done.