Artikelen

Basel III is here to stay and waves of regulatory change will continue to batter the industry for the foreseeable future. At a time when banks find themselves at the very top of the news agenda they cannot afford to fall behind in preparation for these regulatory requirements.

The capital reporting requirements of Basel III, along with other regulations such as MiFID II, FATCA and Dodd-Frank, are leaving banks between a rock and a hard place. The pressure on them to demonstrate transparency and rigorous risk management is great, but compliance with reporting regulators means huge investments and re-engineering of IT and data systems that are already complex. So should banks be re-thinking their regulatory compliance strategy?

The rules text sets out the Basel Committee's framework on the assessment methodology for global systemic importance, the magnitude of additional loss absorbency that global systemically important banks (G-SIBs) should have and the arrangements by which the requirement will be phased in. The cover note to the rules text sets out the Committee's summary and evaluation of the public comments received on the July 2011 consultative document. The rules text was finalised following a careful review of the public comments received. The work of the Basel Committee forms part of a broader effort by the Financial Stability Board to reduce the moral hazard of global systemically important institutions.

The rationale for the policy measures set out in the rules text is to deal with the cross-border negative externalities created by G-SIBs which current regulatory policies do not fully address. The measures will enhance the going-concern loss absorbency of G-SIBs and reduce the probability of their failure.

The assessment methodology for G-SIBs is based on an indicator-based approach and comprises five broad categories: size, interconnectedness, lack of readily available substitutes or financial institution infrastructure, global (cross-jurisdictional) activity and complexity.

The additional loss absorbency requirements will range from 1% to 2.5% Common Equity Tier 1 (CET1) depending on a bank's systemic importance with an empty bucket of 3.5% CET1 as a means to discourage banks from becoming even more systemically important. The higher loss absorbency requirements will be introduced in parallel with the Basel III capital conservation and countercyclical buffers, ie between 1 January 2016 and year end 2018 becoming fully effective on 1 January 2019. 

The financial crisis proved beyond any doubt that the devastating effect of risk interdependence cannot be dismissed. In fact under Basel III, unless a bank is in a position to show adequate provision in catching any kind of early-warning signals, they will be required to increase buffer amounts to guarantee capital adequacy and liquidity as laid out in the accord. As a result banks will need to demonstrate adequate monitoring of their entire transactional environments.

This article examines the Basel III agreement and looks at what this might mean for corporates who primarily use bank finance for their funding.

Although Basel III represents an improvement on the previous accords, problems still persist. The latest round of the Basel accords centres on the introduction of higher capital requirements for banks. Intended to be implemented gradually, the impact of these recommendations has been the subject of considerable speculation on the capital markets.

This document sets out the first set of frequently asked questions that relate to Basel III’s liquidity rules. The first section of the document provides clarification on the calculation of the cap on Level 2 assets with regard to short-term secured funding. Section 2 addresses other questions and answers pertaining to the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) of the rules text. Section 3 sets out miscellaneous edits to the rules text.

The CRD 4 allows core tier 1 capital ratios, under certain circumstances, to be bolstered by items such as deferred tax assets. It also allows banks to take advantage of minority interests and holdings in other financial companies more generously than foreseen under Basel III.

This document sets out the first set of frequently asked questions that relate to Basel III’s liquidity rules. The first section of the document provides clarification on the calculation of the cap on Level 2 assets with regard to short-term secured funding. Section 2 addresses other questions and answers pertaining to the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) of the rules text. Section 3 sets out miscellaneous edits to the rules text.