Basel III is having ramifications through the pension fund and banking sectors of economies around the world. For the end investors, or members of pension funds, this is a good thing. For the funds themselves, this represents a new challenge.
The voluntary worldwide banking code for collateral, which comes into force this year, favours retail investors. Stephen Wells, managing director, Financial Institutions Group, at National Australia Bank, told the IO&C conference that pension funds were regarded as financial institutions under the code and therefore were treated less well than individuals.
What this means is that self-managed super funds (SMSFs) will get a better rate for their cash and term deposit accounts than the big super funds can get. Given the evidence that SMSFs are skewing their asset allocation heavily towards cash and fixed interest, Basel III will exacerbate the trend.
Wells said that the banks and funds were working on presenting “look-through deposits” to allow members to get the better rates due to retail investors. This also required disaggregated information needs, he said.
Under Basel III, there were higher minimums required from “financial institution” clients, as well as additional buffers.
For the average member of an Australian super fund the difference could be as much as 80-100bps due to the new regulations.