Basel III implementation : The Change in UK banks as a result of Basel III framework

Abstract: The financial crisis 2008 could lead to a default of the world banking sector. Theseriousness and urgency of the problem was quickly realized by the Basel Committeeon Banking Supervision, which in response developed a new regulatory standards onbank capital adequacy, stress testing and market liquidity risk that is known as Basel III.The introduction and implementation of Basel III is the topic of current interest. Theeffect of Basel III on banking sector is not known yet. What is known is that thechanges in banking regulations will be significant. Nobody knows whether Basel IIIwill be the panacea from all similar crises, the only thing is left to do is to observe andanalyze. We have decided to look at how the UK banks are going to implement BaselIII on organizational level. What are the changes the banks will need to make in order tomeet the newly introduced requirements? How ready are the UK banks for the newBasel III framework? With those questions in our minds we have decided to formulateour research question as: “What approaches of implementing change as a result of theBasel III framework are utilized by UK banks?” The answer on this question helps us tounderstand the implementation issues that UK banks are facing right now.We have constructed our research on objectivism and positivism positions that havehelped us to study the banks as one organism rather than the collection of differentviewpoints by individuals. In order to answer the research question we have used adeductive approach and a qualitative research strategy. We have collected the data fromthe annual reports and pillar 3 disclosures reports of 5 largest UK banks.We have discussed Basel Accords and the UK banking sector in order to give thereaders the full picture of our research base. Using organizational change theories wehave formulated two propositions. First of them is that the UK banks use plannedapproach to Basel III implementation in relation to change planning. The secondproposition is that the UK banks use first-order change approach to Basel IIIimplementation in relation to degree of change.We have presented and analyzed how the banks deal with different requirements thatwill be implemented as part of Basel III. From this analysis and the discussion we haveconcluded that the banks use planned change approach with some emergent changesigns as concern the intentionality of change. Therefore, we have been able neither fullysupport nor decline the first proposition. As concerns first-order change approach wehave been able to support our proposition but have found out that even with this onecategory the degree of change may vary a lot.