The introduction of the latest Basel bank reforms will require banks to hold more capital, so CFOs should ask if costs of credit will increase.

Running to 1,000 pages in length, implementing the Basel committee on banking supervision’s latest, and probably final, proposals must be one of the most daunting regulatory efforts ever to hit the financial system.

According to Deloitte, the EU’s banking package, which will implement the Basel reforms, is the most important piece of bank prudential legislation proposed in the EU in the last decade.

It includes revisions to the capital requirements directive and regulation (known as CRD6/CRR3) that implement the finalised Basel 3 reforms in the EU, reforms that are known in the UK as Basel 3.1.

"The more you start looking into it, the more layers of the onion there are," says Rod Hardcastle, a director and regulatory specialist at Deloitte.

However, the big question for CFOs – from large multinationals to SMEs – is whether Basel will have a knock-on effect for them as customers and borrowers.

In short, could the Basel regulations increase the cost of credit? This is worth dealing with up front.

"As a general principle," says Nala Worsfold, a regulation expert with UK Finance, an industry body for banking, "Basel 3.1 is expected to increase capital requirements across all banks. This is likely to impact their cost of capital, which may have implications for customers."

Although the final versions for implementation have yet to be agreed, close observers believe that will come early next year, in order to hit Basel’s own implementation deadline of January 1, 2025.

And it’s almost impossible to say how individual banks will react, even more so when it comes to specific asset classes and business lines, especially as the reforms will be implemented (and therefore interpreted) at a national regulatory, or supervisory, level.

But as banks plan their capital needs two to three years out, CFOs might take a similar view.

"Talk to your bank, talk to your relationship manager," says Hardcastle. "Ask them where they are on their implementation journey. What are they thinking, what are they seeing, what are they hearing in the market?"

"Make sure your bank knows you are thinking about this, you know what’s going on and that you want to be kept informed, because the best thing you can do in these situations is make sure you are getting the best information you can as early and as quickly as possible," Hardcastle says.

The final reforms were signed off by the Basel committee in 2017 as a landmark piece of regulation building on the Basel 3 rules introduced in 2010 two years after the global financial crisis.

National competent authorities (NCAs) are responsible for implementing the principles set out by the committee. The core tool used by Basel to protect the financial system is to ensure banks hold enough capital in reserve.

In the UK, the Prudential Regulation Authority (PRA) notes in CP16, a key consultation paper: "As demonstrated in the global financi