EU Commits to 2025 Basel III Rules Amidst Predicted Market Shake-Up

The European Union confirmed on Thursday its final approval to implement the remaining set of tougher bank capital rules starting January 2025. This move builds on the safeguards introduced after taxpayers had to bail out lenders during the global financial crisis over a decade ago. Despite the bulk of the Basel III rules already being in place, this final batch includes a significant addition known as an 'output floor'. This measure aims to prevent big banks, which can use their computer models to calculate capital buffers, from manipulating the system at the expense of smaller rivals who must use more conservative regulatory calculation methods.

"The rules adopted today will ensure that European banks can continue to operate in the face of economic shocks," said Vincent Van Peteghem, Belgium's finance minister and current holder of the EU presidency, in a statement. "They will also make the banking sector more sustainable and better able to deal with the green and digital transitions. This is an important step towards deepening the Banking Union."

In addition to the Basel norms, the bloc has incorporated other rules to standardize the minimum requirements across the 27-country bloc for authorizing branches of banks headquartered outside the EU. The package also includes transitional capital requirements for banks' holdings of crypto assets and changes to improve how lenders manage environmental, social, and governance (ESG) risks.

EU states have scheduled the rollout of these rules from January 2025. However, European Central Bank policymaker Francois Villeroy de Galhau suggested on Wednesday that the implementation should be delayed if the United States lags behind, to prevent a competitive disadvantage for European banks. The Federal Reserve has proposed applying the final Basel rules from mid-2025, aligning with Britain, but significant pushback from the U.S. industry against the Fed's "Basel Endgame" package has cast doubt on the timelines.

As the financial markets brace for the impact of Basel III, predictions suggest a period of instability. Following 14 years of bull markets, a two-month bear market is anticipated, which will cleanse high valuations and bring about cheap bargains. By mid-June 2025, the necessity of this crash will be evident as stronger Basel III capital requirements come into effect once more. Additionally, gold is forecasted to trade at $5,000 by the end of 2025, the US dollar is expected to collapse, and the yen is predicted to become a safe haven currency.