Why the Basel Accords Matter . . . RIGHT NOW

By Stefan Engelhardt of NASBP Member CAC Specialty
Originally published June 16, 2025

If you work in or around finance, insurance, or construction-backed projects, the phrase “Basel III Endgame” or “Basel IV” has likely come up. While it sounds like a high-level banking regulation (and it is), its ripple effects will hit closer to home than many realize, because its starting July 1 that the U.S. and U.K. begin implementing new Basel rules.

Here’s why understanding the Basel framework now matters to businesses beyond just big banks and what you need to know before the changes start rolling out.

What Are the Basel Accords?

The Basel Accords are global regulatory standards developed by the Basel Committee on Banking Supervision. Their purpose is to ensure banks hold enough capital to cover the risks they take on.
There are three main iterations:

• Basel I (1988): Introduced basic capital requirements.
• Basel II (2004): Added more risk-sensitive standards.
• Basel III (2010–ongoing): Developed after the 2008 financial crisis. The final revisions—often called Basel IV are now being implemented worldwide.

What’s Changing on July 1st?

Starting July 1, 2025, U.S. and U.K. regulators will begin enforcing:

• Stricter calculations for risk-weighted assets (RWA)
• A minimum “output floor” limiting how far internal models can deviate from standard ones
• New rules on operational risk, requiring more capital reserves based on firm-wide income and past losses
• Broader implications for credit exposure, including off-balance-sheet guarantees like surety bonds or letters of credit

The U.S. is planning a three-year phase-in, but major banks are already adjusting their lending models in anticipation.

Why This Affects More Than Just Banks

1. Tighter Lending Standards
Banks facing stricter capital requirements may become more conservative. That could mean fewer approvals for construction loans, tighter credit for developers, and more scrutiny on financials—especially for mid-market businesses.

2. Increased Role for Surety and Credit Alternatives
As banks pull back or raise costs, alternatives like surety bonds, credit insurance, or structured guarantees may fill the gap. This isn’t just theory—it’s already happening in Europe and Canada. Surety professionals need to be ready to field more inquiries and underwrite more complex risks.

3. Business Planning Will Need to Adjust
Projects reliant on bank financing, especially those with narrow margins or long timelines, could see delays or increased costs. Business owners and CFOs need to understand that the rules driving their lenders’ decisions are shifting underfoot.

The Takeaway

By July 1, the rules of engagement in financial risk management will begin to shift in a meaningful way. Understanding Basel isn’t just for regulators or Wall Street, it’s a critical knowledge point for anyone operating in the construction, insurance, or project finance sectors.

You don’t need to become an expert. But you do need to understand what these changes mean for your capital partners, your bonding programs, and your long-term strategic planning.

Now is the time to ask the right questions, get educated, and adjust course if needed.

Stefan Engelhardt is a Surety Broker & VP for CAC Specialty. Engelhardt brings a wealth of experience in the Healthcare, Power & Renewables, Construction, and Real Estate sectors. His focus is helping private equity firms and businesses owned by PE with balance sheet strategies and credit solutions, as well as helping international companies manage overseas surety capacity. Engelhardt is a member of the NASBP Commercial Surety Committee and Professional Development Committee. He can be reached at stefan.engelhardt@cacgroup.com or 503.495.3519.