Mythologized today in the same way as the great depression, without yet match it in disaster,

the "subprime crisis" remains one of the worst failure of modern finance. triggered in 2007 by
the financial market of the United States, it spreads throughout the world that it destabilized,
demonstrating the fragility of the financial system, despite the various prudential measures put
in place, including via the Basel accords. The balance sheet bears losses $ 500 billion and $
300 billion the recapitalisation, recapitalization which will be financed by State funds. The
surrender of dubious assets, loans to banks in difficulty, passing through nationalization to
avoid bankruptcy, all the powers of the economic world are seen forced to implement plans to
save the banking and financial system widely affected. For the Basel Committee, the depth
and breadth of the crisis have been accentuated by deficiencies that characterized the banking
sector, such as excessive debt, the inadequacy and poor quality of own funds and the lack of
liquidity flywheels
And it is from the perspective of correcting these deficiencies in the Bank for international
settlements developed new banking regulations known as Basel III.
Succinctly, the new regulation is needed as a aims to enhance the resilience of the banking
system and increase the ability of banks to absorb the potential future shock from the financial
sphere and the real sphere. Basel III thus revolves around two main axes:
Restructure the banking organisations funding rules by increasing the minimum capital
ratios
To guarantee the stability of the liquidity of banking institutions by putting in place of new
liquidity ratios.
These new prudential rules which were confirmed at the seoul G20 Summit are intended to
improve the coverage of systematic risks and to ensure that financial institutions have reserves
and equity and quality in sufficient quantity. The new regulations must allow to deal with
liquidity crises, as having followed the fall of lehman brothers, or even the current crisis
related to sovereign debts. Bank loans as a source of financing vital for SMEs, strengthening
the stability of the banking system in the long term could be a significant advance for SMEs.
However Basel III does not guarantee the balance between the stability of the economic
system and economic efficiency. The new rules, although that views as necessary by most
monetary authorities, are also the object of criticism the main argument is that an excessive
increase in the banking system in a time of reduced time could make banks less able to fund
the economy in an efficient manner. The OECD estimated as well as the implementation of
this new regulation should listen to between 0.05 and 0.015% of economic growth per year.
The new prudential rules could thus lead, through various channels a significant deterioration
in the terms and conditions of granting of credits to SMEs, particularly by a rise in interest
rates to offset the new costs banks face. Other new liquidity ratios shares could have a
significant effect on the type of maturity of loans granted to SMEs.
Already penalized by the Basel rules into force, SMEs could they see their access to credit
restricted with the provisions currently being discussed in the context of Basel III? This article
is designed to illustrate how these sizing problems might, causing an overestimation of capital

requirements, create new constraints on the development of bank credit and, by implication,
on the financing of economic agents highly dependent on access to bank credit, which is the
case of SMEs.
What's new in Basel III.
The analysis of the effects of the crisis led to the fact that its impact on banks comes from the
too rapid growth of balance sheets and off bank balance sheets associated with low quality of
own funds. Own funds are intended to cover risks, resulting in a need to increase their quality
given the level of risk taken by banks and their interdependencies.
Announced in 2010, and entering into force in 2015 are designed to weigh on strategy and the
activities of banks. The goal? Lead has a better stability of the system, this point is required
by a very attentive public opinion on the activity of the banks in due to the impact of the
financial crisis on the global economy degradation.
But carefully speaking what does Basel III? The new prudential regulation is based on three
pillars: the capital, liquidity and systemic risk with upcoming influences on them. The Basel
II standards are therefore a prudential device designed to enhance understanding of banking
risk and mainly the credit or counterparty risk and capital requirements.
AXIS I: the capital
The objective of Basel III is to provide a better safety net internal to the Bank so that they
better protect themselves in the event of loss. For the Committee, this involves improving the
quality of their own funds, the increase in the quality of their own background and the
decrease in leverage.
According to the new Basel laws, sanitation of the quality of own funds of banks through:
The increase in the proportion of Common equity in Tier 1, i.e. the common shares, and
reserves. More specifically, it is to increase the reports again.
The deduction of minority interests, interests in other banks and tax deferred Tier 1 assets
Unification of the Tier 2 on the balance sheet.
The gradual Reduction to exclusion of the hybrid financial products covered by the common
equity
The increase of the own background when she succinctly translates the increase in solvency
ratio which has grown from 8% 10.5%, by the creation of an another counter-cyclical for
sectoral risk safety mats, and recovery Tier resulting in a
a "Core tier One" ratio more demanding: from 2% to 4.5%
a new mattress of safety at 2.5% (planned for 2019)
Level of Common equity fixed at 7% (objective for 2019) minimum
Finally, the decrease in leverage who remember is defined as the ratio of capital to total
exhibitions, translates the fixing of the ratio of leverage to 1% of 3% of the Tier 1 exhibitions
will not then be 33 times higher than Tier 1
Axis II: Liquidity

The question of the liqidite is central in the new regulations with the creation of two new
quick ratio:
The liquidity coverage ratio (LCR): short-term liquidity ratio
The net stable funding ratio (NSFR): long term liquidity ratio
CSF, which is expected to be introduced this year, is a ratio requiring banks to hold a stock of
assets liquid in order to compensate disbursement flows in a situation of crisis over a horizon
of one month.
The NSFR, meanwhile, meets the same objectives as the CSF but over a horizon of one year.
Generally the NFSR guarantees that a laying of sufficiently stable resources to fund its assets
in the medium and long term. For this, the amount of stable jobs must be less than the amount
of stable resources available to institutions. In other terms, it is through the NSFR to
encourage banks to find stable resources for their financing long term and through the CSF of
constraint banks to find the resource in the short term for their short-term financing. IL is here
for banks to protect themselves against situations of stress point by having liquid assets and
good qualities, allowing to resist outputs cash for at least 30 days.
Axis III: the hedge against systemic risk
Specifically the agreement focuses here on trading of the banks in a crisis simulation. The
trading book is the set of tools and financial products held in a negotiation or coverage of
other products. It is in this sense that measures against systemic risk translates into

Redefinition of the Var with incorporation of a load of capital during stress testing.
The addition of extra capital to deal with the risks of defects and degradation of certain
assets note exposures.
Taking into account the risk of correlation between financial institutions and therefore
contagion between them.

The new agreement implication

The new agreement was greeted with a mixed non joy without academic debates and banking
professions fear. All eyes today focuses on the magnitude of the impact will have these new
capital on business ratios, and more particularly to SMEs, and consequently, on the growth of
the volume of credit that is granted to them if it is true that the magnitude of the effect varies
strongly from academic study to the other; fact remains that, most of these studies concludes
in a negative effect on business financing.
Why such fear? All first because the history of the Bank. The future is a long passed as we
commonly say it makes sense to search the consequences of financial policies to similar
effects in the financial literature. Then a cause of additional cost analysis
Historical banking facts
The banking history of the past three decades tells us that episodes of lower credit, famous
Credit Crunch usually coincide with an accentuation of regulatory constraints on credit banks.
This was the case during the recession of 1991-1993, and then in 1998 when the bankruptcy
of the prestigious Fund Long Term Capital Management (LTCM) in which the entire

international banking system failed to be driven. This was also the case in 2001, when the
bursting of the Internet bubble and most recently at the crisis of the premiums.
In fact, contrary to belief, financial literature is rich in empirical on this interdependence,
showing how a capital capital pressure may result in may in credit rationing. We fall mainly
three. In their paper, entitled "the Capital Crunch: neither a borrower nor a Lender be" peek J;
e. rosengren (1995), have rationing of credit in the United States in the early 1990s as a result
of the strengthening of accrued capital with the establishment of the Cooke ratio. Their study
establishes that a shock on the shock on the capital that suffered banks explained not only
credit rationing that emerged. The additional condition has been the strengthening of
prudential constraints on own funds. Thus, in the New England banks in the early 1990s, the
two conditions were assembled. The Basel accords were in place and these banks were facing
large losses in real estate. The capital constraint then emphasized the contraction of credit
including the SMEs.
Sapwood m. and F. Charest (2007), demonstrates that the evolution of SME cash credits is
explained more by supply rather than demand variables in the french context. During the 2001
recession, a significant part of the demand for credit of industrial SMEs has not been met,
inducing a rationing of credit for SMEs.
Finally, m., j. rocholl and s. steffen Puri, (2009) in their paper establishes a link between the
availability of credit and equity difficulties encountered by some German banks during the
subprime crisis. Considering the existence of a negative correlation between the solvency of
banks and the supply of credit, by differentiating two categories of banks: those who endured
severe impairment of assets due to their exposure to the subprime and those who have not
experienced such losses. Banks own funds have been impacted by these losses have rejected
more credit applications. What is sought here show it is that by strengthening regulatory
capital requirements, the new provisions of Basel III risk, in the new regime created by the
crisis, to bring the same type of mechanism.
mpacte of Basel III on the sensitivity of banks at SMEs risk
Since the crisis, banks have become more sensitive to risk. The increase in lending rates in a
context of low interest rates reflects a trend of banks pricing credit risk. However, SMEs tend
to borrowers because of their need for working capital fund (BEF). Of Moreover, traditionally
their funding needs are least well guaranteed and obtaining their credit depends greatly on the
confidence gained from their bankers. Their cost and their value thus depend heavily on the
quality of information held by banks, which makes them hardly marketable. Gold with the
new regulations, the capital plays a greater role in the pricing of non-transferable risks to the
market. However with the new regulations, the Bank pricing has much account of the risk
factor. In this context, proportional to risk additional capital requirements laid down by the
Basle Committee proposals create a real risk of eviction of the SMEs of the credit market.
Impact of the new capital on the interest rate ratios.
The risk of rising interest rates is probably the biggest criticism of the new agreement. In the
current configuration of things, Basel III can affect the rate of interest through two channels
of transmissions: the extent of the additional costs generated by the implementation of new
capital ratios and the intensity of transmission to the interest rate of this additional cost.

The underlying economic argument to the additional cost borne by commercial banks as part
of the establishment capital ratios is that in its policy of improving the quality of own funds,
Core Tier 1 ratio could no longer contain common shares while the hybrid instruments would
be banned. Gold shares ordinary more expensive cost. Therefore, if the average cost of funds
of banks by own background is greater than the average cost of funding by the collection of
deposits, then, inevitably, the increase in capital ratios will cause an increase of the total
average cost of funding for banks. To preserve their margin, banks will therefore need to refer
this increase on interest rates charged on the loans to enterprises. However, in a difficult
economic context at least for the countries of the euro area during the next few years, the
availability of capital in the banking sector European should be rare, which should make its
relatively high average cost.
However, if it is almost sure that new own background ratios will lead to an increase in costs
of financing for banks, the intensity of transmission in the interest rate of this increase in the
total average cost of funding will depend on much of the structure of each country's banking
system. A banking system, marked by openness, transparency and competition, the
transmission of these new costs should be lower. The problem is that many studies conclude
with a high concentration of banking sectors, where a low competition and a greater
opportunity for banks to transfer its new cost in the interest rate of loans granted. However, as
pointed out by many studies academic and of the banking profession, an increasing transfer of
banking activities to the "shadow finance", in response to the establishment of standards Basel
III, could blur the increase of interest rates on loans to SMEs. This moderation could indeed
take place through finance from the shadows.Categorized institutions as part of the shadow
finance are some institutions that are little or not regulated.
Beyond the new provision, they will not have to deal with the costs imposed by the
implementation of the new Basel III ratios. As the increase in interest rate on loans granted by
these institution tend either to be zero or plenty more lower than on the appropriations
proposed by the regulated institutions. Therefore, by game of competitiveness between
institutions Bank regulated and banks little or not regulated, the increase in interest rates on
loans to SMEs by regulated institutions, to the extent that final-ces are to retain their share of
walk on the segment of credit to SMEs.
Nevertheless, the complexity of this class of so-called shadow financial institutions makes it
very difficult weight measurement. Therefore, its role in the weakening of the increases in
interest rates following the implementation of Basel III cannot be assessed accurately.
Finally, the growth of the finance of the shadows could have counterproductive effects.
Certainly, it could blur the transmission on the interest rate of the cost of the establishment of
the bank capital ratios. However its very existence will become problematic insofar as it will
bring into question the main objective of Basel III, namely, increased stability of the banking
system.
The impact of the new ratios of Bank reserves on SMEs loans
At first glance, this ratio should be able to provide guarantees for the banking sector: it
implies the increase of the share of the assets liquids that are easily transferable, and entails
the reduction of the risk of dependency on the central bank or other banking institutions,
which can be dangerous in the case of a liquidity crisis.

However, denounced even by bank workers, these new rules on liquidity could also have
negative effects on the future of the banks and the terms and conditions of the credit to SMEs.
Firstly, the implementation of the CSF and especially of the NSFR could lead a significant
structural change in the role of intermediation and transformation of the banks. On the other
hand, this potential transformation should have a major cost that could contribute to a new
increase in interest rates and could also affect the maturity of loans to SMEs. In the first case,
the NFSR leads a most important match between the maturity of the assets of the Bank and of
its own funding. Thus, this ratio further restricts the use of Bank resources in the short term to
finance short-term lower-paying assets. Conversely, to finance medium and long term assets,
banks will be largely forced to utilize resources for long term naturally more expensive, and,
de facto, less generating margins.
Therefore, the original role of banks, namely to collect liquid savings (individuals or
companies), regarded as resources in the short term, for the Bank, and transform it into longterm loans would be fully transformed.
Other shares, the conditions and the terms of the granting of credits to businesses, and SMEs
in particular would be profoundly modified. First of all, the rates charged on loans with longer
maturity could increase significantly, to the extent that their funding will have to be done with
the liquidity of long maturity, thus more expensive. While SMEs, less capital-intensive, do not
have long-term financial needs of larger companies. But their short-term funding needs are
high, because of their need for working capital fund (BEF). Therefore banks should have
recourse to new instruments financial to convert resources from short term long term
resources. However these instruments such as savings plans blocked with attractive rates for
savers will inevitably once more a rising rates of interest on short and medium-term SME
credits.
the new liquidity standards could also cause, funding even for the creation of SMEs. Indeed
since that banks will struggle to convert their resources of short-term resources from longterm, ls will be forced to give less loans with long maturities and therefore little loan for even
creating new SMEs. However it should be noted that very few studies have actually studied
the impact of respect for the liquidity ratios on the future maturity of the loans granted by the
banks. Moreover, because multiple controversies raised by the NSFR ratio, the European
Commission decided, for the moment, not to impose this ratio as a directive, not considering
it not 'ready for use '.
An impact differentiated according to the characteristics of the SME
The phenomenon of hardening of the conditions and terms of granting of the credit of course
will not equally affect all SMEs. The magnitude of the increase in stress in the granting of
credit to SMEs, should depend on mainly its sector of activity, its size and its phase of life.
With regard to the nature of the industry, banking barometer made in March 2012 by the firm
Ernst and Young to give the point of Belgian banking institutions on the level of the
conditions and terms in the granting of credit to the Belgian economy sectors for the next six
months.
This study concluded, certainly, that a significant share of the Belgian institutions expects a
generalized tightening of conditions and terms for granting credits to companies over the next
six months. However the barometer shows that the proportion of Belgian banks anticipating a

hardening varies greatly from one sector to another, since he spent 40% in construction at
24% in sector machinery and engineering. Thus, the amount of the risk premium demanded
by a bank when granting credit to SMEs, and the importance of hardening of the rating
methodology may strongly depend on the type of activity of the SMEs.
About the size of SMEs, the cost of implementing Basel III standards for micro-enterprises
(Enterprise with less than 10 employees) and the independent could be even more important
for two main reasons.
First of all, these small businesses and these independent banking issues are poorly
understood and poorly studied; Therefore, public authorities often cannot take appropriate
measures to help them. Then, often needs financing for a few thousand euros, and with that a
single bank in many cases, small businesses and the self-employed generally have a
dependency much more marked towards their bank and, has weaker bargaining in the event of
unfavourable rating power.
Finally, the phase of life in which is located the SMEs at the time of his application for credit
could have an impact, non-negligible its likelihood of success to get the requested loan.
Basel III should push banks to take fewer risks with regard to design or survival enterprises,
or to increase the risk premium required for the financing of these enterprises. Basel III could,
therefore, cause a significant reduction in the number of businesses created and curb, see
prevent, the passage of some companies of the phase survival to the phase of profitability.

Conclusion
Bank barometer, carried out in March 2012 by Ernst and Young, concluded that 60% of the
Belgian banks (i.e. a significantly larger proportion than that of the European Union) expect a
greater financial stability following the new Basel III standards.
However, in the same survey, approximately two thirds of these establishments (a proportion
equivalent to that of the European Union) anticipates an increase in the cost of credit to their
customers as an effect of the implementation of Basel III.
SMEs are often regarded as client more risky for banks, the increase in the cost of borrowing
might therefore be more important to these companies. The increase in interest rates on loans
to SMEs is primarily the rate of new bank capital ratios, making the average cost of funding
for banks higher and new Bank of cash, ces-latest standards being despite any more likely to
affect interest rates for medium and long-term loans.
The increase in competition in the Belgian banking sector could mitigate the transmission of
these new costs to the interest rates on loans to SMEs. The probable future increase in the
volume of banking activities transferred to the banking sector little or not regulated is
expected to reduce the intensity of the transfer of these additional costs. The extent of the
tightening of the conditions for the granting of credit to an SME should vary significantly
according to their sector of activity, its size and the phase of life in which it finds itself at the
time of his loan application