Nevertheless the qualitative assessments and quantitative impact studies converge toward the understanding that the global regulatory changes will impact the availability and cost of funding in the EM in transition period. The financial structure in the EE is rather simple, and dominated by the banking system, the retrenchment of credit financing might impair growth prospects and the potential for job creation in the emerging markets. BIS central bankers’ speeches  1  Although the reforms process is quite comprehensive and there are probably many channels through which it can translate to the EE, still there are some key channels that I would like to highlight. The first point of transmission refers to Basel III capital requirements. To provide adequate coverage of banks’ risks exposure with capital, focus is placed on enhanced risk coverage (especially trading book), higher quality and quantity of the regulatory capital, and constraints on leverage. Overall, it appears that banks in emerging markets are well capitalized with relatively low reliance on hybrid capital instruments, with traditional business and no significant exposure to risks related to trading book, so significant direct impact of the new capital requirements is not expected. But the indirect effects are perceived as important, with possible adverse impact on the access to financing and the growth potential. Some of the important indirect implications are very well being pinpointed by the IMF (April, 2013) in its scrutiny on impact of the global regulatory changes on the CESEE countries.

– The new capital requirements require balance sheet rebalancing of internationally active banks, i.e., increase of the capital or reduction in risk weighted assets. Given the still slow recovery process that would be an obstacle for faster increase of capital (through reinvested earnings or new capital injections) this may have implications for the availability of finance. One related issue is the exclusion of minority stakes from consolidated group capital and its implications for the process of deleverage as well as for the development and liquidity of local equity markets (change in the nature of acquisitions). – “Retrenchment in specialty finance due to higher risk weights for certain finance instruments would be particularly harmful to the growth outlook of the region. Some of the sectors most exposed to the retrenchment process are specialty finance lines, particularly infrastructure finance and trade finance. Infrastructure finance is characterized by long maturities, heavy use of syndication, and dependence on long-term dollar funding that makes it particularly exposed to deleveraging” – Cost of finance – “The cost of finance in the region could increase due to inherent inconsistencies in the treatment of sovereign exposures at the solo and consolidated levels. Host supervisors typically apply low risk-weighting for exposures to the host sovereign. However under the forthcoming set of EU regulations, higher risk weights on these exposures could result in a higher cost of finance in the host jurisdiction”. The second channel of transmission is related to the Basel III liquidity framework.