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1
What is going on in Baselby
Michaela ErbenovaMonetary and Capital Markets Department
International Monetary Fund
Seminar for Senior Bank Supervisors from Emerging EconomiesOctober 19 2015
Outline
I Not so new but you need to know standards guidelines and sound practices
II Zooming in new standards
III Zooming out implementation ongoing work and looking forward
2
I Whatrsquos new from Basel
Not so new but you need to know standards guidelines and sound practices
3
Latest standards (2014-2015) a lot2014
bull Leverage ratio and disclosure requirements
bull Liquidity coverage ratio disclosure standards
bull LCR and restricted use committed liquidity facilities
bull Standardized approaches for measuring counterparty credit risk exposures
bull Capital requirements for bank exposures to central counterparties
bull Supervisory framework for measuring and controlling large exposures
bull FAQs LCR
bull FAQ leverage ratio
bull Net Stable Funding ratio
bull G-SIB assessment methodology
bull Revisions to the securitization framework
2015
bull Revised Pillar 3 disclosure requirements
bull Margin requirements for non-centrally cleared derivatives
bull NSFR disclosure standards
bull FAQs Basel III Leverage Ratio Framework
bull FAQs Standardized approaches for measuring counterparty credit risk exposures 4
Guidelines and sound practices (2014-2015)
bull Guidance for supervisors on market-based indicators of liquidity (Jan 2014)bull Sound management of risks related to money laundering and financing of terrorism (Jan
2014)bull A sound capital planning process fundamental elements (Jan 2014)bull Range of practice in the regulation and supervision of institutions relevant to financial
inclusion (Jan 2015)bull External audits of banks (Mar 2014)bull Principles for effective supervisory colleges (Jun 2014)bull Review of the principles for sound management of operational risk (Oct 2014)bull Developments in credit risk management across sectors current practices and
recommendations (Jun 2015)bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) bull Criteria for identifying simple transparent and comparable securitisations (Jul 2015)bull Report on impact and accountability of banking supervision (Jul 2015)bull Corporate governance principles for banks (Jul 2015)
Important consultative guidance docbull Guidance on accounting for expected credit losses
5
Monitoring implementation (2014-2015)
bull Point of sale disclosure in the insurance banking and securities sector (Apr 2014)bull Supervisory colleges for financial conglomerates (Apr 2014)bull Trading book hypothetical portfolio exercise (Sept 2014)bull Reducing excessive variability in banks regulatory capital ratios (Nov 2014)bull Impact and implementation challenges of Basel framework for emerging market
developing and small economies (Nov 2014)bull The interplay of accounting and regulation and its impact on bank behavior (Jan
2015)bull Range of practice in the regulation and supervision of institutions relevant to
financial inclusion (Jan 2015)bull Basel III monitoring and implementation reports (September 2015 ndash latest)bull RCAP reports 14 completed and published since 2015 including LCR (latest South
Africa Saudi Arabia and India)bull Progress in adopting principles for effective risk data aggregation and risk
reporting (Jan 2015)bull Basel capital framework national discretions (Nov 2014) ndash and in April 2015
elimination of some low hanging fruit (press release)
6
II Zooming in
7
8
Basel I ndash III Synopsis
Basel I Basel II Basel III
Basel Accord 1988 first international agreement
Definition of capital
Focus on sufficiency of capital vis-agrave-vis credit risk
Fixed risk weights
Amended in 1996 to include a parallel capital requirement for market risk
Published in 2004
Introduced 3 Pillars
Menu of more risk-sensitive approaches
Sup review process
Disclosure
Broader coverage of risks
Credit risk
Market Risk
Operational Risk
Published in 2010
Implementation 2013-2019
Better definition of capital enhanced risk coverage new and higher ratios
Leverage Ratio
Mitigating pro-cyclicality
Capital Conservation and Counter-Cyclical Buffers
Two new Liquidity Standards
Focus on Global Systemically Important Institutions
G-SIB surcharge
Enhanced disclosure
Securitization off-balance sheet vehicles components of capital
Basel III reforms target
Bank-level or microprudential
regulation which will help raise
the resilience of individual
banking institutions to periods
of stress
System-wide or
macroprudential risks that can
build up across the banking
sector as well as the procyclical
amplification of these risks
over time 9
Finishing Basel III
Leverage ratioLiquidity
framework
Pillar III
10
11
Leverage RatioThe backstop to supplement risk-based capital
Capital to total on and off balance sheet assets
Assets
On balance
sheet
Off balance
sheet
Capital
Tier 1
Other Tier 1
Tier 2
Simple transparent non-risk based measure
bull Proposal is Tier 1
bull But monitoring phase will track impact of total capital and common equity
Numerator
bull Key issues ndash netting and off- balance sheet items
bull Conversion factors (CCF) ndash as Basel II with 10 floor
bull 100 CCF for committed lines
Denominator
bull 3 proposal
bull To be tested during parallel run period of 2013-2016
Calibration
Liquidity risk the new metrics
12
Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
Stock of High Quality Liquid Assets
Net Cash Out over 30 days under stressgt 100
Available Amount of Stable Funding
Required Amount of Stable Fundinggt 100
LCR short-term - ensure that a bank maintains an adequate level of unencumbered high
quality assets that can be converted into cash to meet its
liquidity needs for a 30-day time horizon under an acute liquidity
stress
NSFR medium to long-term -full balance-sheet metric that
compares under more prolonged but less acute stress
than in the LCR estimates of reliable funding sources and
required stable funding over the 1 year horizon
Two complementary metrics with different time horizons
LCR Finalized Jan 2013 implementation and disclosure from 2015 phase-in by 2019 Disclosure standard Jan 2014 NSFR Finalized Oct 2014 Disclosure Jun 2015 to become minimum stnd by Jan 2018
Pillar 3
bull Issued January 2015 start on end 2016
bull Main elements
a) Transparency of the internal model-based approaches
b) Comparability use of templates for quantitative disclosure accompanied with definitions some of them with a fixed format
13
Basel III implementation Global Picture
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf14
Country SA FIRB
AIRB
BIA TSA AMA
P2 P3 Rev P1
Suppl P
2
Rev P3
Mkt
risk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cyc
l
LR D-SIB
s
G-SIB
s
AngolaBotswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Africa
Asia-Pacific
Europe
WesternHemisphere
Middle Eastamp Central
Asia
New standard Large exposures
bull Final document April 15 2014
bull General limit 25 of tier 1 capital
bull For intra-GSIB exposures limit 15 (to reduce the
interconnectedness between GSIBs)
bull Definition (for reporting purposes) any exposure ge10 of tier 1 capital
bull Applies to single counterparty and connected counterparties
15
New standard Large exposures
bull Framework ignores credit quality of counterpartyBut takes CCFs and financial collateral into account
Covered bonds subject to 20 ldquoCCFrdquo - If certain maximum LTVs apply
Sovereigns and their central banks exempted
bull No exemption for interbank exposures beyond intra-dayBut subject to review clause (by 2016)
bull To be implemented by 2019
16
Better supervision
bull Sound management of risks related to money laundering and financing of terrorism (Jan 2014) AML from the banking supervisor perspective ref for CP 29
bull External audits of banks (Mar 2014) Supervisory expectations and relationship with external auditors ref for CP 27
bull Principles for effective supervisory colleges (Jun 2014) Crisis management groups (CMGs) macroprudential considerations
bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) Emphasis on early intervention corrective action and the use of recovery and
resolution tools Discussion on public solvency and liquidity support in exceptional circumstances
bull Corporate governance principles for banks (Jul 2015) Expanded guidance on the role of the board of directors and its collective
competence risk governance guidance role of compensation and incentives17
III Looking ahead
18
Implementation monitoring and assessing
Risk-based capital RCAPs ndash continue with remaining BCBS countries
Integrate LCR and SIB-treatment
Senior review group to be established
19
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Outline
I Not so new but you need to know standards guidelines and sound practices
II Zooming in new standards
III Zooming out implementation ongoing work and looking forward
2
I Whatrsquos new from Basel
Not so new but you need to know standards guidelines and sound practices
3
Latest standards (2014-2015) a lot2014
bull Leverage ratio and disclosure requirements
bull Liquidity coverage ratio disclosure standards
bull LCR and restricted use committed liquidity facilities
bull Standardized approaches for measuring counterparty credit risk exposures
bull Capital requirements for bank exposures to central counterparties
bull Supervisory framework for measuring and controlling large exposures
bull FAQs LCR
bull FAQ leverage ratio
bull Net Stable Funding ratio
bull G-SIB assessment methodology
bull Revisions to the securitization framework
2015
bull Revised Pillar 3 disclosure requirements
bull Margin requirements for non-centrally cleared derivatives
bull NSFR disclosure standards
bull FAQs Basel III Leverage Ratio Framework
bull FAQs Standardized approaches for measuring counterparty credit risk exposures 4
Guidelines and sound practices (2014-2015)
bull Guidance for supervisors on market-based indicators of liquidity (Jan 2014)bull Sound management of risks related to money laundering and financing of terrorism (Jan
2014)bull A sound capital planning process fundamental elements (Jan 2014)bull Range of practice in the regulation and supervision of institutions relevant to financial
inclusion (Jan 2015)bull External audits of banks (Mar 2014)bull Principles for effective supervisory colleges (Jun 2014)bull Review of the principles for sound management of operational risk (Oct 2014)bull Developments in credit risk management across sectors current practices and
recommendations (Jun 2015)bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) bull Criteria for identifying simple transparent and comparable securitisations (Jul 2015)bull Report on impact and accountability of banking supervision (Jul 2015)bull Corporate governance principles for banks (Jul 2015)
Important consultative guidance docbull Guidance on accounting for expected credit losses
5
Monitoring implementation (2014-2015)
bull Point of sale disclosure in the insurance banking and securities sector (Apr 2014)bull Supervisory colleges for financial conglomerates (Apr 2014)bull Trading book hypothetical portfolio exercise (Sept 2014)bull Reducing excessive variability in banks regulatory capital ratios (Nov 2014)bull Impact and implementation challenges of Basel framework for emerging market
developing and small economies (Nov 2014)bull The interplay of accounting and regulation and its impact on bank behavior (Jan
2015)bull Range of practice in the regulation and supervision of institutions relevant to
financial inclusion (Jan 2015)bull Basel III monitoring and implementation reports (September 2015 ndash latest)bull RCAP reports 14 completed and published since 2015 including LCR (latest South
Africa Saudi Arabia and India)bull Progress in adopting principles for effective risk data aggregation and risk
reporting (Jan 2015)bull Basel capital framework national discretions (Nov 2014) ndash and in April 2015
elimination of some low hanging fruit (press release)
6
II Zooming in
7
8
Basel I ndash III Synopsis
Basel I Basel II Basel III
Basel Accord 1988 first international agreement
Definition of capital
Focus on sufficiency of capital vis-agrave-vis credit risk
Fixed risk weights
Amended in 1996 to include a parallel capital requirement for market risk
Published in 2004
Introduced 3 Pillars
Menu of more risk-sensitive approaches
Sup review process
Disclosure
Broader coverage of risks
Credit risk
Market Risk
Operational Risk
Published in 2010
Implementation 2013-2019
Better definition of capital enhanced risk coverage new and higher ratios
Leverage Ratio
Mitigating pro-cyclicality
Capital Conservation and Counter-Cyclical Buffers
Two new Liquidity Standards
Focus on Global Systemically Important Institutions
G-SIB surcharge
Enhanced disclosure
Securitization off-balance sheet vehicles components of capital
Basel III reforms target
Bank-level or microprudential
regulation which will help raise
the resilience of individual
banking institutions to periods
of stress
System-wide or
macroprudential risks that can
build up across the banking
sector as well as the procyclical
amplification of these risks
over time 9
Finishing Basel III
Leverage ratioLiquidity
framework
Pillar III
10
11
Leverage RatioThe backstop to supplement risk-based capital
Capital to total on and off balance sheet assets
Assets
On balance
sheet
Off balance
sheet
Capital
Tier 1
Other Tier 1
Tier 2
Simple transparent non-risk based measure
bull Proposal is Tier 1
bull But monitoring phase will track impact of total capital and common equity
Numerator
bull Key issues ndash netting and off- balance sheet items
bull Conversion factors (CCF) ndash as Basel II with 10 floor
bull 100 CCF for committed lines
Denominator
bull 3 proposal
bull To be tested during parallel run period of 2013-2016
Calibration
Liquidity risk the new metrics
12
Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
Stock of High Quality Liquid Assets
Net Cash Out over 30 days under stressgt 100
Available Amount of Stable Funding
Required Amount of Stable Fundinggt 100
LCR short-term - ensure that a bank maintains an adequate level of unencumbered high
quality assets that can be converted into cash to meet its
liquidity needs for a 30-day time horizon under an acute liquidity
stress
NSFR medium to long-term -full balance-sheet metric that
compares under more prolonged but less acute stress
than in the LCR estimates of reliable funding sources and
required stable funding over the 1 year horizon
Two complementary metrics with different time horizons
LCR Finalized Jan 2013 implementation and disclosure from 2015 phase-in by 2019 Disclosure standard Jan 2014 NSFR Finalized Oct 2014 Disclosure Jun 2015 to become minimum stnd by Jan 2018
Pillar 3
bull Issued January 2015 start on end 2016
bull Main elements
a) Transparency of the internal model-based approaches
b) Comparability use of templates for quantitative disclosure accompanied with definitions some of them with a fixed format
13
Basel III implementation Global Picture
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf14
Country SA FIRB
AIRB
BIA TSA AMA
P2 P3 Rev P1
Suppl P
2
Rev P3
Mkt
risk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cyc
l
LR D-SIB
s
G-SIB
s
AngolaBotswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Africa
Asia-Pacific
Europe
WesternHemisphere
Middle Eastamp Central
Asia
New standard Large exposures
bull Final document April 15 2014
bull General limit 25 of tier 1 capital
bull For intra-GSIB exposures limit 15 (to reduce the
interconnectedness between GSIBs)
bull Definition (for reporting purposes) any exposure ge10 of tier 1 capital
bull Applies to single counterparty and connected counterparties
15
New standard Large exposures
bull Framework ignores credit quality of counterpartyBut takes CCFs and financial collateral into account
Covered bonds subject to 20 ldquoCCFrdquo - If certain maximum LTVs apply
Sovereigns and their central banks exempted
bull No exemption for interbank exposures beyond intra-dayBut subject to review clause (by 2016)
bull To be implemented by 2019
16
Better supervision
bull Sound management of risks related to money laundering and financing of terrorism (Jan 2014) AML from the banking supervisor perspective ref for CP 29
bull External audits of banks (Mar 2014) Supervisory expectations and relationship with external auditors ref for CP 27
bull Principles for effective supervisory colleges (Jun 2014) Crisis management groups (CMGs) macroprudential considerations
bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) Emphasis on early intervention corrective action and the use of recovery and
resolution tools Discussion on public solvency and liquidity support in exceptional circumstances
bull Corporate governance principles for banks (Jul 2015) Expanded guidance on the role of the board of directors and its collective
competence risk governance guidance role of compensation and incentives17
III Looking ahead
18
Implementation monitoring and assessing
Risk-based capital RCAPs ndash continue with remaining BCBS countries
Integrate LCR and SIB-treatment
Senior review group to be established
19
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
I Whatrsquos new from Basel
Not so new but you need to know standards guidelines and sound practices
3
Latest standards (2014-2015) a lot2014
bull Leverage ratio and disclosure requirements
bull Liquidity coverage ratio disclosure standards
bull LCR and restricted use committed liquidity facilities
bull Standardized approaches for measuring counterparty credit risk exposures
bull Capital requirements for bank exposures to central counterparties
bull Supervisory framework for measuring and controlling large exposures
bull FAQs LCR
bull FAQ leverage ratio
bull Net Stable Funding ratio
bull G-SIB assessment methodology
bull Revisions to the securitization framework
2015
bull Revised Pillar 3 disclosure requirements
bull Margin requirements for non-centrally cleared derivatives
bull NSFR disclosure standards
bull FAQs Basel III Leverage Ratio Framework
bull FAQs Standardized approaches for measuring counterparty credit risk exposures 4
Guidelines and sound practices (2014-2015)
bull Guidance for supervisors on market-based indicators of liquidity (Jan 2014)bull Sound management of risks related to money laundering and financing of terrorism (Jan
2014)bull A sound capital planning process fundamental elements (Jan 2014)bull Range of practice in the regulation and supervision of institutions relevant to financial
inclusion (Jan 2015)bull External audits of banks (Mar 2014)bull Principles for effective supervisory colleges (Jun 2014)bull Review of the principles for sound management of operational risk (Oct 2014)bull Developments in credit risk management across sectors current practices and
recommendations (Jun 2015)bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) bull Criteria for identifying simple transparent and comparable securitisations (Jul 2015)bull Report on impact and accountability of banking supervision (Jul 2015)bull Corporate governance principles for banks (Jul 2015)
Important consultative guidance docbull Guidance on accounting for expected credit losses
5
Monitoring implementation (2014-2015)
bull Point of sale disclosure in the insurance banking and securities sector (Apr 2014)bull Supervisory colleges for financial conglomerates (Apr 2014)bull Trading book hypothetical portfolio exercise (Sept 2014)bull Reducing excessive variability in banks regulatory capital ratios (Nov 2014)bull Impact and implementation challenges of Basel framework for emerging market
developing and small economies (Nov 2014)bull The interplay of accounting and regulation and its impact on bank behavior (Jan
2015)bull Range of practice in the regulation and supervision of institutions relevant to
financial inclusion (Jan 2015)bull Basel III monitoring and implementation reports (September 2015 ndash latest)bull RCAP reports 14 completed and published since 2015 including LCR (latest South
Africa Saudi Arabia and India)bull Progress in adopting principles for effective risk data aggregation and risk
reporting (Jan 2015)bull Basel capital framework national discretions (Nov 2014) ndash and in April 2015
elimination of some low hanging fruit (press release)
6
II Zooming in
7
8
Basel I ndash III Synopsis
Basel I Basel II Basel III
Basel Accord 1988 first international agreement
Definition of capital
Focus on sufficiency of capital vis-agrave-vis credit risk
Fixed risk weights
Amended in 1996 to include a parallel capital requirement for market risk
Published in 2004
Introduced 3 Pillars
Menu of more risk-sensitive approaches
Sup review process
Disclosure
Broader coverage of risks
Credit risk
Market Risk
Operational Risk
Published in 2010
Implementation 2013-2019
Better definition of capital enhanced risk coverage new and higher ratios
Leverage Ratio
Mitigating pro-cyclicality
Capital Conservation and Counter-Cyclical Buffers
Two new Liquidity Standards
Focus on Global Systemically Important Institutions
G-SIB surcharge
Enhanced disclosure
Securitization off-balance sheet vehicles components of capital
Basel III reforms target
Bank-level or microprudential
regulation which will help raise
the resilience of individual
banking institutions to periods
of stress
System-wide or
macroprudential risks that can
build up across the banking
sector as well as the procyclical
amplification of these risks
over time 9
Finishing Basel III
Leverage ratioLiquidity
framework
Pillar III
10
11
Leverage RatioThe backstop to supplement risk-based capital
Capital to total on and off balance sheet assets
Assets
On balance
sheet
Off balance
sheet
Capital
Tier 1
Other Tier 1
Tier 2
Simple transparent non-risk based measure
bull Proposal is Tier 1
bull But monitoring phase will track impact of total capital and common equity
Numerator
bull Key issues ndash netting and off- balance sheet items
bull Conversion factors (CCF) ndash as Basel II with 10 floor
bull 100 CCF for committed lines
Denominator
bull 3 proposal
bull To be tested during parallel run period of 2013-2016
Calibration
Liquidity risk the new metrics
12
Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
Stock of High Quality Liquid Assets
Net Cash Out over 30 days under stressgt 100
Available Amount of Stable Funding
Required Amount of Stable Fundinggt 100
LCR short-term - ensure that a bank maintains an adequate level of unencumbered high
quality assets that can be converted into cash to meet its
liquidity needs for a 30-day time horizon under an acute liquidity
stress
NSFR medium to long-term -full balance-sheet metric that
compares under more prolonged but less acute stress
than in the LCR estimates of reliable funding sources and
required stable funding over the 1 year horizon
Two complementary metrics with different time horizons
LCR Finalized Jan 2013 implementation and disclosure from 2015 phase-in by 2019 Disclosure standard Jan 2014 NSFR Finalized Oct 2014 Disclosure Jun 2015 to become minimum stnd by Jan 2018
Pillar 3
bull Issued January 2015 start on end 2016
bull Main elements
a) Transparency of the internal model-based approaches
b) Comparability use of templates for quantitative disclosure accompanied with definitions some of them with a fixed format
13
Basel III implementation Global Picture
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf14
Country SA FIRB
AIRB
BIA TSA AMA
P2 P3 Rev P1
Suppl P
2
Rev P3
Mkt
risk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cyc
l
LR D-SIB
s
G-SIB
s
AngolaBotswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Africa
Asia-Pacific
Europe
WesternHemisphere
Middle Eastamp Central
Asia
New standard Large exposures
bull Final document April 15 2014
bull General limit 25 of tier 1 capital
bull For intra-GSIB exposures limit 15 (to reduce the
interconnectedness between GSIBs)
bull Definition (for reporting purposes) any exposure ge10 of tier 1 capital
bull Applies to single counterparty and connected counterparties
15
New standard Large exposures
bull Framework ignores credit quality of counterpartyBut takes CCFs and financial collateral into account
Covered bonds subject to 20 ldquoCCFrdquo - If certain maximum LTVs apply
Sovereigns and their central banks exempted
bull No exemption for interbank exposures beyond intra-dayBut subject to review clause (by 2016)
bull To be implemented by 2019
16
Better supervision
bull Sound management of risks related to money laundering and financing of terrorism (Jan 2014) AML from the banking supervisor perspective ref for CP 29
bull External audits of banks (Mar 2014) Supervisory expectations and relationship with external auditors ref for CP 27
bull Principles for effective supervisory colleges (Jun 2014) Crisis management groups (CMGs) macroprudential considerations
bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) Emphasis on early intervention corrective action and the use of recovery and
resolution tools Discussion on public solvency and liquidity support in exceptional circumstances
bull Corporate governance principles for banks (Jul 2015) Expanded guidance on the role of the board of directors and its collective
competence risk governance guidance role of compensation and incentives17
III Looking ahead
18
Implementation monitoring and assessing
Risk-based capital RCAPs ndash continue with remaining BCBS countries
Integrate LCR and SIB-treatment
Senior review group to be established
19
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Latest standards (2014-2015) a lot2014
bull Leverage ratio and disclosure requirements
bull Liquidity coverage ratio disclosure standards
bull LCR and restricted use committed liquidity facilities
bull Standardized approaches for measuring counterparty credit risk exposures
bull Capital requirements for bank exposures to central counterparties
bull Supervisory framework for measuring and controlling large exposures
bull FAQs LCR
bull FAQ leverage ratio
bull Net Stable Funding ratio
bull G-SIB assessment methodology
bull Revisions to the securitization framework
2015
bull Revised Pillar 3 disclosure requirements
bull Margin requirements for non-centrally cleared derivatives
bull NSFR disclosure standards
bull FAQs Basel III Leverage Ratio Framework
bull FAQs Standardized approaches for measuring counterparty credit risk exposures 4
Guidelines and sound practices (2014-2015)
bull Guidance for supervisors on market-based indicators of liquidity (Jan 2014)bull Sound management of risks related to money laundering and financing of terrorism (Jan
2014)bull A sound capital planning process fundamental elements (Jan 2014)bull Range of practice in the regulation and supervision of institutions relevant to financial
inclusion (Jan 2015)bull External audits of banks (Mar 2014)bull Principles for effective supervisory colleges (Jun 2014)bull Review of the principles for sound management of operational risk (Oct 2014)bull Developments in credit risk management across sectors current practices and
recommendations (Jun 2015)bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) bull Criteria for identifying simple transparent and comparable securitisations (Jul 2015)bull Report on impact and accountability of banking supervision (Jul 2015)bull Corporate governance principles for banks (Jul 2015)
Important consultative guidance docbull Guidance on accounting for expected credit losses
5
Monitoring implementation (2014-2015)
bull Point of sale disclosure in the insurance banking and securities sector (Apr 2014)bull Supervisory colleges for financial conglomerates (Apr 2014)bull Trading book hypothetical portfolio exercise (Sept 2014)bull Reducing excessive variability in banks regulatory capital ratios (Nov 2014)bull Impact and implementation challenges of Basel framework for emerging market
developing and small economies (Nov 2014)bull The interplay of accounting and regulation and its impact on bank behavior (Jan
2015)bull Range of practice in the regulation and supervision of institutions relevant to
financial inclusion (Jan 2015)bull Basel III monitoring and implementation reports (September 2015 ndash latest)bull RCAP reports 14 completed and published since 2015 including LCR (latest South
Africa Saudi Arabia and India)bull Progress in adopting principles for effective risk data aggregation and risk
reporting (Jan 2015)bull Basel capital framework national discretions (Nov 2014) ndash and in April 2015
elimination of some low hanging fruit (press release)
6
II Zooming in
7
8
Basel I ndash III Synopsis
Basel I Basel II Basel III
Basel Accord 1988 first international agreement
Definition of capital
Focus on sufficiency of capital vis-agrave-vis credit risk
Fixed risk weights
Amended in 1996 to include a parallel capital requirement for market risk
Published in 2004
Introduced 3 Pillars
Menu of more risk-sensitive approaches
Sup review process
Disclosure
Broader coverage of risks
Credit risk
Market Risk
Operational Risk
Published in 2010
Implementation 2013-2019
Better definition of capital enhanced risk coverage new and higher ratios
Leverage Ratio
Mitigating pro-cyclicality
Capital Conservation and Counter-Cyclical Buffers
Two new Liquidity Standards
Focus on Global Systemically Important Institutions
G-SIB surcharge
Enhanced disclosure
Securitization off-balance sheet vehicles components of capital
Basel III reforms target
Bank-level or microprudential
regulation which will help raise
the resilience of individual
banking institutions to periods
of stress
System-wide or
macroprudential risks that can
build up across the banking
sector as well as the procyclical
amplification of these risks
over time 9
Finishing Basel III
Leverage ratioLiquidity
framework
Pillar III
10
11
Leverage RatioThe backstop to supplement risk-based capital
Capital to total on and off balance sheet assets
Assets
On balance
sheet
Off balance
sheet
Capital
Tier 1
Other Tier 1
Tier 2
Simple transparent non-risk based measure
bull Proposal is Tier 1
bull But monitoring phase will track impact of total capital and common equity
Numerator
bull Key issues ndash netting and off- balance sheet items
bull Conversion factors (CCF) ndash as Basel II with 10 floor
bull 100 CCF for committed lines
Denominator
bull 3 proposal
bull To be tested during parallel run period of 2013-2016
Calibration
Liquidity risk the new metrics
12
Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
Stock of High Quality Liquid Assets
Net Cash Out over 30 days under stressgt 100
Available Amount of Stable Funding
Required Amount of Stable Fundinggt 100
LCR short-term - ensure that a bank maintains an adequate level of unencumbered high
quality assets that can be converted into cash to meet its
liquidity needs for a 30-day time horizon under an acute liquidity
stress
NSFR medium to long-term -full balance-sheet metric that
compares under more prolonged but less acute stress
than in the LCR estimates of reliable funding sources and
required stable funding over the 1 year horizon
Two complementary metrics with different time horizons
LCR Finalized Jan 2013 implementation and disclosure from 2015 phase-in by 2019 Disclosure standard Jan 2014 NSFR Finalized Oct 2014 Disclosure Jun 2015 to become minimum stnd by Jan 2018
Pillar 3
bull Issued January 2015 start on end 2016
bull Main elements
a) Transparency of the internal model-based approaches
b) Comparability use of templates for quantitative disclosure accompanied with definitions some of them with a fixed format
13
Basel III implementation Global Picture
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf14
Country SA FIRB
AIRB
BIA TSA AMA
P2 P3 Rev P1
Suppl P
2
Rev P3
Mkt
risk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cyc
l
LR D-SIB
s
G-SIB
s
AngolaBotswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Africa
Asia-Pacific
Europe
WesternHemisphere
Middle Eastamp Central
Asia
New standard Large exposures
bull Final document April 15 2014
bull General limit 25 of tier 1 capital
bull For intra-GSIB exposures limit 15 (to reduce the
interconnectedness between GSIBs)
bull Definition (for reporting purposes) any exposure ge10 of tier 1 capital
bull Applies to single counterparty and connected counterparties
15
New standard Large exposures
bull Framework ignores credit quality of counterpartyBut takes CCFs and financial collateral into account
Covered bonds subject to 20 ldquoCCFrdquo - If certain maximum LTVs apply
Sovereigns and their central banks exempted
bull No exemption for interbank exposures beyond intra-dayBut subject to review clause (by 2016)
bull To be implemented by 2019
16
Better supervision
bull Sound management of risks related to money laundering and financing of terrorism (Jan 2014) AML from the banking supervisor perspective ref for CP 29
bull External audits of banks (Mar 2014) Supervisory expectations and relationship with external auditors ref for CP 27
bull Principles for effective supervisory colleges (Jun 2014) Crisis management groups (CMGs) macroprudential considerations
bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) Emphasis on early intervention corrective action and the use of recovery and
resolution tools Discussion on public solvency and liquidity support in exceptional circumstances
bull Corporate governance principles for banks (Jul 2015) Expanded guidance on the role of the board of directors and its collective
competence risk governance guidance role of compensation and incentives17
III Looking ahead
18
Implementation monitoring and assessing
Risk-based capital RCAPs ndash continue with remaining BCBS countries
Integrate LCR and SIB-treatment
Senior review group to be established
19
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Guidelines and sound practices (2014-2015)
bull Guidance for supervisors on market-based indicators of liquidity (Jan 2014)bull Sound management of risks related to money laundering and financing of terrorism (Jan
2014)bull A sound capital planning process fundamental elements (Jan 2014)bull Range of practice in the regulation and supervision of institutions relevant to financial
inclusion (Jan 2015)bull External audits of banks (Mar 2014)bull Principles for effective supervisory colleges (Jun 2014)bull Review of the principles for sound management of operational risk (Oct 2014)bull Developments in credit risk management across sectors current practices and
recommendations (Jun 2015)bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) bull Criteria for identifying simple transparent and comparable securitisations (Jul 2015)bull Report on impact and accountability of banking supervision (Jul 2015)bull Corporate governance principles for banks (Jul 2015)
Important consultative guidance docbull Guidance on accounting for expected credit losses
5
Monitoring implementation (2014-2015)
bull Point of sale disclosure in the insurance banking and securities sector (Apr 2014)bull Supervisory colleges for financial conglomerates (Apr 2014)bull Trading book hypothetical portfolio exercise (Sept 2014)bull Reducing excessive variability in banks regulatory capital ratios (Nov 2014)bull Impact and implementation challenges of Basel framework for emerging market
developing and small economies (Nov 2014)bull The interplay of accounting and regulation and its impact on bank behavior (Jan
2015)bull Range of practice in the regulation and supervision of institutions relevant to
financial inclusion (Jan 2015)bull Basel III monitoring and implementation reports (September 2015 ndash latest)bull RCAP reports 14 completed and published since 2015 including LCR (latest South
Africa Saudi Arabia and India)bull Progress in adopting principles for effective risk data aggregation and risk
reporting (Jan 2015)bull Basel capital framework national discretions (Nov 2014) ndash and in April 2015
elimination of some low hanging fruit (press release)
6
II Zooming in
7
8
Basel I ndash III Synopsis
Basel I Basel II Basel III
Basel Accord 1988 first international agreement
Definition of capital
Focus on sufficiency of capital vis-agrave-vis credit risk
Fixed risk weights
Amended in 1996 to include a parallel capital requirement for market risk
Published in 2004
Introduced 3 Pillars
Menu of more risk-sensitive approaches
Sup review process
Disclosure
Broader coverage of risks
Credit risk
Market Risk
Operational Risk
Published in 2010
Implementation 2013-2019
Better definition of capital enhanced risk coverage new and higher ratios
Leverage Ratio
Mitigating pro-cyclicality
Capital Conservation and Counter-Cyclical Buffers
Two new Liquidity Standards
Focus on Global Systemically Important Institutions
G-SIB surcharge
Enhanced disclosure
Securitization off-balance sheet vehicles components of capital
Basel III reforms target
Bank-level or microprudential
regulation which will help raise
the resilience of individual
banking institutions to periods
of stress
System-wide or
macroprudential risks that can
build up across the banking
sector as well as the procyclical
amplification of these risks
over time 9
Finishing Basel III
Leverage ratioLiquidity
framework
Pillar III
10
11
Leverage RatioThe backstop to supplement risk-based capital
Capital to total on and off balance sheet assets
Assets
On balance
sheet
Off balance
sheet
Capital
Tier 1
Other Tier 1
Tier 2
Simple transparent non-risk based measure
bull Proposal is Tier 1
bull But monitoring phase will track impact of total capital and common equity
Numerator
bull Key issues ndash netting and off- balance sheet items
bull Conversion factors (CCF) ndash as Basel II with 10 floor
bull 100 CCF for committed lines
Denominator
bull 3 proposal
bull To be tested during parallel run period of 2013-2016
Calibration
Liquidity risk the new metrics
12
Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
Stock of High Quality Liquid Assets
Net Cash Out over 30 days under stressgt 100
Available Amount of Stable Funding
Required Amount of Stable Fundinggt 100
LCR short-term - ensure that a bank maintains an adequate level of unencumbered high
quality assets that can be converted into cash to meet its
liquidity needs for a 30-day time horizon under an acute liquidity
stress
NSFR medium to long-term -full balance-sheet metric that
compares under more prolonged but less acute stress
than in the LCR estimates of reliable funding sources and
required stable funding over the 1 year horizon
Two complementary metrics with different time horizons
LCR Finalized Jan 2013 implementation and disclosure from 2015 phase-in by 2019 Disclosure standard Jan 2014 NSFR Finalized Oct 2014 Disclosure Jun 2015 to become minimum stnd by Jan 2018
Pillar 3
bull Issued January 2015 start on end 2016
bull Main elements
a) Transparency of the internal model-based approaches
b) Comparability use of templates for quantitative disclosure accompanied with definitions some of them with a fixed format
13
Basel III implementation Global Picture
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf14
Country SA FIRB
AIRB
BIA TSA AMA
P2 P3 Rev P1
Suppl P
2
Rev P3
Mkt
risk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cyc
l
LR D-SIB
s
G-SIB
s
AngolaBotswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Africa
Asia-Pacific
Europe
WesternHemisphere
Middle Eastamp Central
Asia
New standard Large exposures
bull Final document April 15 2014
bull General limit 25 of tier 1 capital
bull For intra-GSIB exposures limit 15 (to reduce the
interconnectedness between GSIBs)
bull Definition (for reporting purposes) any exposure ge10 of tier 1 capital
bull Applies to single counterparty and connected counterparties
15
New standard Large exposures
bull Framework ignores credit quality of counterpartyBut takes CCFs and financial collateral into account
Covered bonds subject to 20 ldquoCCFrdquo - If certain maximum LTVs apply
Sovereigns and their central banks exempted
bull No exemption for interbank exposures beyond intra-dayBut subject to review clause (by 2016)
bull To be implemented by 2019
16
Better supervision
bull Sound management of risks related to money laundering and financing of terrorism (Jan 2014) AML from the banking supervisor perspective ref for CP 29
bull External audits of banks (Mar 2014) Supervisory expectations and relationship with external auditors ref for CP 27
bull Principles for effective supervisory colleges (Jun 2014) Crisis management groups (CMGs) macroprudential considerations
bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) Emphasis on early intervention corrective action and the use of recovery and
resolution tools Discussion on public solvency and liquidity support in exceptional circumstances
bull Corporate governance principles for banks (Jul 2015) Expanded guidance on the role of the board of directors and its collective
competence risk governance guidance role of compensation and incentives17
III Looking ahead
18
Implementation monitoring and assessing
Risk-based capital RCAPs ndash continue with remaining BCBS countries
Integrate LCR and SIB-treatment
Senior review group to be established
19
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Monitoring implementation (2014-2015)
bull Point of sale disclosure in the insurance banking and securities sector (Apr 2014)bull Supervisory colleges for financial conglomerates (Apr 2014)bull Trading book hypothetical portfolio exercise (Sept 2014)bull Reducing excessive variability in banks regulatory capital ratios (Nov 2014)bull Impact and implementation challenges of Basel framework for emerging market
developing and small economies (Nov 2014)bull The interplay of accounting and regulation and its impact on bank behavior (Jan
2015)bull Range of practice in the regulation and supervision of institutions relevant to
financial inclusion (Jan 2015)bull Basel III monitoring and implementation reports (September 2015 ndash latest)bull RCAP reports 14 completed and published since 2015 including LCR (latest South
Africa Saudi Arabia and India)bull Progress in adopting principles for effective risk data aggregation and risk
reporting (Jan 2015)bull Basel capital framework national discretions (Nov 2014) ndash and in April 2015
elimination of some low hanging fruit (press release)
6
II Zooming in
7
8
Basel I ndash III Synopsis
Basel I Basel II Basel III
Basel Accord 1988 first international agreement
Definition of capital
Focus on sufficiency of capital vis-agrave-vis credit risk
Fixed risk weights
Amended in 1996 to include a parallel capital requirement for market risk
Published in 2004
Introduced 3 Pillars
Menu of more risk-sensitive approaches
Sup review process
Disclosure
Broader coverage of risks
Credit risk
Market Risk
Operational Risk
Published in 2010
Implementation 2013-2019
Better definition of capital enhanced risk coverage new and higher ratios
Leverage Ratio
Mitigating pro-cyclicality
Capital Conservation and Counter-Cyclical Buffers
Two new Liquidity Standards
Focus on Global Systemically Important Institutions
G-SIB surcharge
Enhanced disclosure
Securitization off-balance sheet vehicles components of capital
Basel III reforms target
Bank-level or microprudential
regulation which will help raise
the resilience of individual
banking institutions to periods
of stress
System-wide or
macroprudential risks that can
build up across the banking
sector as well as the procyclical
amplification of these risks
over time 9
Finishing Basel III
Leverage ratioLiquidity
framework
Pillar III
10
11
Leverage RatioThe backstop to supplement risk-based capital
Capital to total on and off balance sheet assets
Assets
On balance
sheet
Off balance
sheet
Capital
Tier 1
Other Tier 1
Tier 2
Simple transparent non-risk based measure
bull Proposal is Tier 1
bull But monitoring phase will track impact of total capital and common equity
Numerator
bull Key issues ndash netting and off- balance sheet items
bull Conversion factors (CCF) ndash as Basel II with 10 floor
bull 100 CCF for committed lines
Denominator
bull 3 proposal
bull To be tested during parallel run period of 2013-2016
Calibration
Liquidity risk the new metrics
12
Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
Stock of High Quality Liquid Assets
Net Cash Out over 30 days under stressgt 100
Available Amount of Stable Funding
Required Amount of Stable Fundinggt 100
LCR short-term - ensure that a bank maintains an adequate level of unencumbered high
quality assets that can be converted into cash to meet its
liquidity needs for a 30-day time horizon under an acute liquidity
stress
NSFR medium to long-term -full balance-sheet metric that
compares under more prolonged but less acute stress
than in the LCR estimates of reliable funding sources and
required stable funding over the 1 year horizon
Two complementary metrics with different time horizons
LCR Finalized Jan 2013 implementation and disclosure from 2015 phase-in by 2019 Disclosure standard Jan 2014 NSFR Finalized Oct 2014 Disclosure Jun 2015 to become minimum stnd by Jan 2018
Pillar 3
bull Issued January 2015 start on end 2016
bull Main elements
a) Transparency of the internal model-based approaches
b) Comparability use of templates for quantitative disclosure accompanied with definitions some of them with a fixed format
13
Basel III implementation Global Picture
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf14
Country SA FIRB
AIRB
BIA TSA AMA
P2 P3 Rev P1
Suppl P
2
Rev P3
Mkt
risk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cyc
l
LR D-SIB
s
G-SIB
s
AngolaBotswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Africa
Asia-Pacific
Europe
WesternHemisphere
Middle Eastamp Central
Asia
New standard Large exposures
bull Final document April 15 2014
bull General limit 25 of tier 1 capital
bull For intra-GSIB exposures limit 15 (to reduce the
interconnectedness between GSIBs)
bull Definition (for reporting purposes) any exposure ge10 of tier 1 capital
bull Applies to single counterparty and connected counterparties
15
New standard Large exposures
bull Framework ignores credit quality of counterpartyBut takes CCFs and financial collateral into account
Covered bonds subject to 20 ldquoCCFrdquo - If certain maximum LTVs apply
Sovereigns and their central banks exempted
bull No exemption for interbank exposures beyond intra-dayBut subject to review clause (by 2016)
bull To be implemented by 2019
16
Better supervision
bull Sound management of risks related to money laundering and financing of terrorism (Jan 2014) AML from the banking supervisor perspective ref for CP 29
bull External audits of banks (Mar 2014) Supervisory expectations and relationship with external auditors ref for CP 27
bull Principles for effective supervisory colleges (Jun 2014) Crisis management groups (CMGs) macroprudential considerations
bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) Emphasis on early intervention corrective action and the use of recovery and
resolution tools Discussion on public solvency and liquidity support in exceptional circumstances
bull Corporate governance principles for banks (Jul 2015) Expanded guidance on the role of the board of directors and its collective
competence risk governance guidance role of compensation and incentives17
III Looking ahead
18
Implementation monitoring and assessing
Risk-based capital RCAPs ndash continue with remaining BCBS countries
Integrate LCR and SIB-treatment
Senior review group to be established
19
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
II Zooming in
7
8
Basel I ndash III Synopsis
Basel I Basel II Basel III
Basel Accord 1988 first international agreement
Definition of capital
Focus on sufficiency of capital vis-agrave-vis credit risk
Fixed risk weights
Amended in 1996 to include a parallel capital requirement for market risk
Published in 2004
Introduced 3 Pillars
Menu of more risk-sensitive approaches
Sup review process
Disclosure
Broader coverage of risks
Credit risk
Market Risk
Operational Risk
Published in 2010
Implementation 2013-2019
Better definition of capital enhanced risk coverage new and higher ratios
Leverage Ratio
Mitigating pro-cyclicality
Capital Conservation and Counter-Cyclical Buffers
Two new Liquidity Standards
Focus on Global Systemically Important Institutions
G-SIB surcharge
Enhanced disclosure
Securitization off-balance sheet vehicles components of capital
Basel III reforms target
Bank-level or microprudential
regulation which will help raise
the resilience of individual
banking institutions to periods
of stress
System-wide or
macroprudential risks that can
build up across the banking
sector as well as the procyclical
amplification of these risks
over time 9
Finishing Basel III
Leverage ratioLiquidity
framework
Pillar III
10
11
Leverage RatioThe backstop to supplement risk-based capital
Capital to total on and off balance sheet assets
Assets
On balance
sheet
Off balance
sheet
Capital
Tier 1
Other Tier 1
Tier 2
Simple transparent non-risk based measure
bull Proposal is Tier 1
bull But monitoring phase will track impact of total capital and common equity
Numerator
bull Key issues ndash netting and off- balance sheet items
bull Conversion factors (CCF) ndash as Basel II with 10 floor
bull 100 CCF for committed lines
Denominator
bull 3 proposal
bull To be tested during parallel run period of 2013-2016
Calibration
Liquidity risk the new metrics
12
Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
Stock of High Quality Liquid Assets
Net Cash Out over 30 days under stressgt 100
Available Amount of Stable Funding
Required Amount of Stable Fundinggt 100
LCR short-term - ensure that a bank maintains an adequate level of unencumbered high
quality assets that can be converted into cash to meet its
liquidity needs for a 30-day time horizon under an acute liquidity
stress
NSFR medium to long-term -full balance-sheet metric that
compares under more prolonged but less acute stress
than in the LCR estimates of reliable funding sources and
required stable funding over the 1 year horizon
Two complementary metrics with different time horizons
LCR Finalized Jan 2013 implementation and disclosure from 2015 phase-in by 2019 Disclosure standard Jan 2014 NSFR Finalized Oct 2014 Disclosure Jun 2015 to become minimum stnd by Jan 2018
Pillar 3
bull Issued January 2015 start on end 2016
bull Main elements
a) Transparency of the internal model-based approaches
b) Comparability use of templates for quantitative disclosure accompanied with definitions some of them with a fixed format
13
Basel III implementation Global Picture
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf14
Country SA FIRB
AIRB
BIA TSA AMA
P2 P3 Rev P1
Suppl P
2
Rev P3
Mkt
risk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cyc
l
LR D-SIB
s
G-SIB
s
AngolaBotswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Africa
Asia-Pacific
Europe
WesternHemisphere
Middle Eastamp Central
Asia
New standard Large exposures
bull Final document April 15 2014
bull General limit 25 of tier 1 capital
bull For intra-GSIB exposures limit 15 (to reduce the
interconnectedness between GSIBs)
bull Definition (for reporting purposes) any exposure ge10 of tier 1 capital
bull Applies to single counterparty and connected counterparties
15
New standard Large exposures
bull Framework ignores credit quality of counterpartyBut takes CCFs and financial collateral into account
Covered bonds subject to 20 ldquoCCFrdquo - If certain maximum LTVs apply
Sovereigns and their central banks exempted
bull No exemption for interbank exposures beyond intra-dayBut subject to review clause (by 2016)
bull To be implemented by 2019
16
Better supervision
bull Sound management of risks related to money laundering and financing of terrorism (Jan 2014) AML from the banking supervisor perspective ref for CP 29
bull External audits of banks (Mar 2014) Supervisory expectations and relationship with external auditors ref for CP 27
bull Principles for effective supervisory colleges (Jun 2014) Crisis management groups (CMGs) macroprudential considerations
bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) Emphasis on early intervention corrective action and the use of recovery and
resolution tools Discussion on public solvency and liquidity support in exceptional circumstances
bull Corporate governance principles for banks (Jul 2015) Expanded guidance on the role of the board of directors and its collective
competence risk governance guidance role of compensation and incentives17
III Looking ahead
18
Implementation monitoring and assessing
Risk-based capital RCAPs ndash continue with remaining BCBS countries
Integrate LCR and SIB-treatment
Senior review group to be established
19
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
8
Basel I ndash III Synopsis
Basel I Basel II Basel III
Basel Accord 1988 first international agreement
Definition of capital
Focus on sufficiency of capital vis-agrave-vis credit risk
Fixed risk weights
Amended in 1996 to include a parallel capital requirement for market risk
Published in 2004
Introduced 3 Pillars
Menu of more risk-sensitive approaches
Sup review process
Disclosure
Broader coverage of risks
Credit risk
Market Risk
Operational Risk
Published in 2010
Implementation 2013-2019
Better definition of capital enhanced risk coverage new and higher ratios
Leverage Ratio
Mitigating pro-cyclicality
Capital Conservation and Counter-Cyclical Buffers
Two new Liquidity Standards
Focus on Global Systemically Important Institutions
G-SIB surcharge
Enhanced disclosure
Securitization off-balance sheet vehicles components of capital
Basel III reforms target
Bank-level or microprudential
regulation which will help raise
the resilience of individual
banking institutions to periods
of stress
System-wide or
macroprudential risks that can
build up across the banking
sector as well as the procyclical
amplification of these risks
over time 9
Finishing Basel III
Leverage ratioLiquidity
framework
Pillar III
10
11
Leverage RatioThe backstop to supplement risk-based capital
Capital to total on and off balance sheet assets
Assets
On balance
sheet
Off balance
sheet
Capital
Tier 1
Other Tier 1
Tier 2
Simple transparent non-risk based measure
bull Proposal is Tier 1
bull But monitoring phase will track impact of total capital and common equity
Numerator
bull Key issues ndash netting and off- balance sheet items
bull Conversion factors (CCF) ndash as Basel II with 10 floor
bull 100 CCF for committed lines
Denominator
bull 3 proposal
bull To be tested during parallel run period of 2013-2016
Calibration
Liquidity risk the new metrics
12
Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
Stock of High Quality Liquid Assets
Net Cash Out over 30 days under stressgt 100
Available Amount of Stable Funding
Required Amount of Stable Fundinggt 100
LCR short-term - ensure that a bank maintains an adequate level of unencumbered high
quality assets that can be converted into cash to meet its
liquidity needs for a 30-day time horizon under an acute liquidity
stress
NSFR medium to long-term -full balance-sheet metric that
compares under more prolonged but less acute stress
than in the LCR estimates of reliable funding sources and
required stable funding over the 1 year horizon
Two complementary metrics with different time horizons
LCR Finalized Jan 2013 implementation and disclosure from 2015 phase-in by 2019 Disclosure standard Jan 2014 NSFR Finalized Oct 2014 Disclosure Jun 2015 to become minimum stnd by Jan 2018
Pillar 3
bull Issued January 2015 start on end 2016
bull Main elements
a) Transparency of the internal model-based approaches
b) Comparability use of templates for quantitative disclosure accompanied with definitions some of them with a fixed format
13
Basel III implementation Global Picture
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf14
Country SA FIRB
AIRB
BIA TSA AMA
P2 P3 Rev P1
Suppl P
2
Rev P3
Mkt
risk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cyc
l
LR D-SIB
s
G-SIB
s
AngolaBotswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Africa
Asia-Pacific
Europe
WesternHemisphere
Middle Eastamp Central
Asia
New standard Large exposures
bull Final document April 15 2014
bull General limit 25 of tier 1 capital
bull For intra-GSIB exposures limit 15 (to reduce the
interconnectedness between GSIBs)
bull Definition (for reporting purposes) any exposure ge10 of tier 1 capital
bull Applies to single counterparty and connected counterparties
15
New standard Large exposures
bull Framework ignores credit quality of counterpartyBut takes CCFs and financial collateral into account
Covered bonds subject to 20 ldquoCCFrdquo - If certain maximum LTVs apply
Sovereigns and their central banks exempted
bull No exemption for interbank exposures beyond intra-dayBut subject to review clause (by 2016)
bull To be implemented by 2019
16
Better supervision
bull Sound management of risks related to money laundering and financing of terrorism (Jan 2014) AML from the banking supervisor perspective ref for CP 29
bull External audits of banks (Mar 2014) Supervisory expectations and relationship with external auditors ref for CP 27
bull Principles for effective supervisory colleges (Jun 2014) Crisis management groups (CMGs) macroprudential considerations
bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) Emphasis on early intervention corrective action and the use of recovery and
resolution tools Discussion on public solvency and liquidity support in exceptional circumstances
bull Corporate governance principles for banks (Jul 2015) Expanded guidance on the role of the board of directors and its collective
competence risk governance guidance role of compensation and incentives17
III Looking ahead
18
Implementation monitoring and assessing
Risk-based capital RCAPs ndash continue with remaining BCBS countries
Integrate LCR and SIB-treatment
Senior review group to be established
19
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Basel III reforms target
Bank-level or microprudential
regulation which will help raise
the resilience of individual
banking institutions to periods
of stress
System-wide or
macroprudential risks that can
build up across the banking
sector as well as the procyclical
amplification of these risks
over time 9
Finishing Basel III
Leverage ratioLiquidity
framework
Pillar III
10
11
Leverage RatioThe backstop to supplement risk-based capital
Capital to total on and off balance sheet assets
Assets
On balance
sheet
Off balance
sheet
Capital
Tier 1
Other Tier 1
Tier 2
Simple transparent non-risk based measure
bull Proposal is Tier 1
bull But monitoring phase will track impact of total capital and common equity
Numerator
bull Key issues ndash netting and off- balance sheet items
bull Conversion factors (CCF) ndash as Basel II with 10 floor
bull 100 CCF for committed lines
Denominator
bull 3 proposal
bull To be tested during parallel run period of 2013-2016
Calibration
Liquidity risk the new metrics
12
Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
Stock of High Quality Liquid Assets
Net Cash Out over 30 days under stressgt 100
Available Amount of Stable Funding
Required Amount of Stable Fundinggt 100
LCR short-term - ensure that a bank maintains an adequate level of unencumbered high
quality assets that can be converted into cash to meet its
liquidity needs for a 30-day time horizon under an acute liquidity
stress
NSFR medium to long-term -full balance-sheet metric that
compares under more prolonged but less acute stress
than in the LCR estimates of reliable funding sources and
required stable funding over the 1 year horizon
Two complementary metrics with different time horizons
LCR Finalized Jan 2013 implementation and disclosure from 2015 phase-in by 2019 Disclosure standard Jan 2014 NSFR Finalized Oct 2014 Disclosure Jun 2015 to become minimum stnd by Jan 2018
Pillar 3
bull Issued January 2015 start on end 2016
bull Main elements
a) Transparency of the internal model-based approaches
b) Comparability use of templates for quantitative disclosure accompanied with definitions some of them with a fixed format
13
Basel III implementation Global Picture
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf14
Country SA FIRB
AIRB
BIA TSA AMA
P2 P3 Rev P1
Suppl P
2
Rev P3
Mkt
risk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cyc
l
LR D-SIB
s
G-SIB
s
AngolaBotswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Africa
Asia-Pacific
Europe
WesternHemisphere
Middle Eastamp Central
Asia
New standard Large exposures
bull Final document April 15 2014
bull General limit 25 of tier 1 capital
bull For intra-GSIB exposures limit 15 (to reduce the
interconnectedness between GSIBs)
bull Definition (for reporting purposes) any exposure ge10 of tier 1 capital
bull Applies to single counterparty and connected counterparties
15
New standard Large exposures
bull Framework ignores credit quality of counterpartyBut takes CCFs and financial collateral into account
Covered bonds subject to 20 ldquoCCFrdquo - If certain maximum LTVs apply
Sovereigns and their central banks exempted
bull No exemption for interbank exposures beyond intra-dayBut subject to review clause (by 2016)
bull To be implemented by 2019
16
Better supervision
bull Sound management of risks related to money laundering and financing of terrorism (Jan 2014) AML from the banking supervisor perspective ref for CP 29
bull External audits of banks (Mar 2014) Supervisory expectations and relationship with external auditors ref for CP 27
bull Principles for effective supervisory colleges (Jun 2014) Crisis management groups (CMGs) macroprudential considerations
bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) Emphasis on early intervention corrective action and the use of recovery and
resolution tools Discussion on public solvency and liquidity support in exceptional circumstances
bull Corporate governance principles for banks (Jul 2015) Expanded guidance on the role of the board of directors and its collective
competence risk governance guidance role of compensation and incentives17
III Looking ahead
18
Implementation monitoring and assessing
Risk-based capital RCAPs ndash continue with remaining BCBS countries
Integrate LCR and SIB-treatment
Senior review group to be established
19
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Finishing Basel III
Leverage ratioLiquidity
framework
Pillar III
10
11
Leverage RatioThe backstop to supplement risk-based capital
Capital to total on and off balance sheet assets
Assets
On balance
sheet
Off balance
sheet
Capital
Tier 1
Other Tier 1
Tier 2
Simple transparent non-risk based measure
bull Proposal is Tier 1
bull But monitoring phase will track impact of total capital and common equity
Numerator
bull Key issues ndash netting and off- balance sheet items
bull Conversion factors (CCF) ndash as Basel II with 10 floor
bull 100 CCF for committed lines
Denominator
bull 3 proposal
bull To be tested during parallel run period of 2013-2016
Calibration
Liquidity risk the new metrics
12
Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
Stock of High Quality Liquid Assets
Net Cash Out over 30 days under stressgt 100
Available Amount of Stable Funding
Required Amount of Stable Fundinggt 100
LCR short-term - ensure that a bank maintains an adequate level of unencumbered high
quality assets that can be converted into cash to meet its
liquidity needs for a 30-day time horizon under an acute liquidity
stress
NSFR medium to long-term -full balance-sheet metric that
compares under more prolonged but less acute stress
than in the LCR estimates of reliable funding sources and
required stable funding over the 1 year horizon
Two complementary metrics with different time horizons
LCR Finalized Jan 2013 implementation and disclosure from 2015 phase-in by 2019 Disclosure standard Jan 2014 NSFR Finalized Oct 2014 Disclosure Jun 2015 to become minimum stnd by Jan 2018
Pillar 3
bull Issued January 2015 start on end 2016
bull Main elements
a) Transparency of the internal model-based approaches
b) Comparability use of templates for quantitative disclosure accompanied with definitions some of them with a fixed format
13
Basel III implementation Global Picture
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf14
Country SA FIRB
AIRB
BIA TSA AMA
P2 P3 Rev P1
Suppl P
2
Rev P3
Mkt
risk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cyc
l
LR D-SIB
s
G-SIB
s
AngolaBotswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Africa
Asia-Pacific
Europe
WesternHemisphere
Middle Eastamp Central
Asia
New standard Large exposures
bull Final document April 15 2014
bull General limit 25 of tier 1 capital
bull For intra-GSIB exposures limit 15 (to reduce the
interconnectedness between GSIBs)
bull Definition (for reporting purposes) any exposure ge10 of tier 1 capital
bull Applies to single counterparty and connected counterparties
15
New standard Large exposures
bull Framework ignores credit quality of counterpartyBut takes CCFs and financial collateral into account
Covered bonds subject to 20 ldquoCCFrdquo - If certain maximum LTVs apply
Sovereigns and their central banks exempted
bull No exemption for interbank exposures beyond intra-dayBut subject to review clause (by 2016)
bull To be implemented by 2019
16
Better supervision
bull Sound management of risks related to money laundering and financing of terrorism (Jan 2014) AML from the banking supervisor perspective ref for CP 29
bull External audits of banks (Mar 2014) Supervisory expectations and relationship with external auditors ref for CP 27
bull Principles for effective supervisory colleges (Jun 2014) Crisis management groups (CMGs) macroprudential considerations
bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) Emphasis on early intervention corrective action and the use of recovery and
resolution tools Discussion on public solvency and liquidity support in exceptional circumstances
bull Corporate governance principles for banks (Jul 2015) Expanded guidance on the role of the board of directors and its collective
competence risk governance guidance role of compensation and incentives17
III Looking ahead
18
Implementation monitoring and assessing
Risk-based capital RCAPs ndash continue with remaining BCBS countries
Integrate LCR and SIB-treatment
Senior review group to be established
19
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
11
Leverage RatioThe backstop to supplement risk-based capital
Capital to total on and off balance sheet assets
Assets
On balance
sheet
Off balance
sheet
Capital
Tier 1
Other Tier 1
Tier 2
Simple transparent non-risk based measure
bull Proposal is Tier 1
bull But monitoring phase will track impact of total capital and common equity
Numerator
bull Key issues ndash netting and off- balance sheet items
bull Conversion factors (CCF) ndash as Basel II with 10 floor
bull 100 CCF for committed lines
Denominator
bull 3 proposal
bull To be tested during parallel run period of 2013-2016
Calibration
Liquidity risk the new metrics
12
Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
Stock of High Quality Liquid Assets
Net Cash Out over 30 days under stressgt 100
Available Amount of Stable Funding
Required Amount of Stable Fundinggt 100
LCR short-term - ensure that a bank maintains an adequate level of unencumbered high
quality assets that can be converted into cash to meet its
liquidity needs for a 30-day time horizon under an acute liquidity
stress
NSFR medium to long-term -full balance-sheet metric that
compares under more prolonged but less acute stress
than in the LCR estimates of reliable funding sources and
required stable funding over the 1 year horizon
Two complementary metrics with different time horizons
LCR Finalized Jan 2013 implementation and disclosure from 2015 phase-in by 2019 Disclosure standard Jan 2014 NSFR Finalized Oct 2014 Disclosure Jun 2015 to become minimum stnd by Jan 2018
Pillar 3
bull Issued January 2015 start on end 2016
bull Main elements
a) Transparency of the internal model-based approaches
b) Comparability use of templates for quantitative disclosure accompanied with definitions some of them with a fixed format
13
Basel III implementation Global Picture
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf14
Country SA FIRB
AIRB
BIA TSA AMA
P2 P3 Rev P1
Suppl P
2
Rev P3
Mkt
risk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cyc
l
LR D-SIB
s
G-SIB
s
AngolaBotswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Africa
Asia-Pacific
Europe
WesternHemisphere
Middle Eastamp Central
Asia
New standard Large exposures
bull Final document April 15 2014
bull General limit 25 of tier 1 capital
bull For intra-GSIB exposures limit 15 (to reduce the
interconnectedness between GSIBs)
bull Definition (for reporting purposes) any exposure ge10 of tier 1 capital
bull Applies to single counterparty and connected counterparties
15
New standard Large exposures
bull Framework ignores credit quality of counterpartyBut takes CCFs and financial collateral into account
Covered bonds subject to 20 ldquoCCFrdquo - If certain maximum LTVs apply
Sovereigns and their central banks exempted
bull No exemption for interbank exposures beyond intra-dayBut subject to review clause (by 2016)
bull To be implemented by 2019
16
Better supervision
bull Sound management of risks related to money laundering and financing of terrorism (Jan 2014) AML from the banking supervisor perspective ref for CP 29
bull External audits of banks (Mar 2014) Supervisory expectations and relationship with external auditors ref for CP 27
bull Principles for effective supervisory colleges (Jun 2014) Crisis management groups (CMGs) macroprudential considerations
bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) Emphasis on early intervention corrective action and the use of recovery and
resolution tools Discussion on public solvency and liquidity support in exceptional circumstances
bull Corporate governance principles for banks (Jul 2015) Expanded guidance on the role of the board of directors and its collective
competence risk governance guidance role of compensation and incentives17
III Looking ahead
18
Implementation monitoring and assessing
Risk-based capital RCAPs ndash continue with remaining BCBS countries
Integrate LCR and SIB-treatment
Senior review group to be established
19
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Liquidity risk the new metrics
12
Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
Stock of High Quality Liquid Assets
Net Cash Out over 30 days under stressgt 100
Available Amount of Stable Funding
Required Amount of Stable Fundinggt 100
LCR short-term - ensure that a bank maintains an adequate level of unencumbered high
quality assets that can be converted into cash to meet its
liquidity needs for a 30-day time horizon under an acute liquidity
stress
NSFR medium to long-term -full balance-sheet metric that
compares under more prolonged but less acute stress
than in the LCR estimates of reliable funding sources and
required stable funding over the 1 year horizon
Two complementary metrics with different time horizons
LCR Finalized Jan 2013 implementation and disclosure from 2015 phase-in by 2019 Disclosure standard Jan 2014 NSFR Finalized Oct 2014 Disclosure Jun 2015 to become minimum stnd by Jan 2018
Pillar 3
bull Issued January 2015 start on end 2016
bull Main elements
a) Transparency of the internal model-based approaches
b) Comparability use of templates for quantitative disclosure accompanied with definitions some of them with a fixed format
13
Basel III implementation Global Picture
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf14
Country SA FIRB
AIRB
BIA TSA AMA
P2 P3 Rev P1
Suppl P
2
Rev P3
Mkt
risk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cyc
l
LR D-SIB
s
G-SIB
s
AngolaBotswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Africa
Asia-Pacific
Europe
WesternHemisphere
Middle Eastamp Central
Asia
New standard Large exposures
bull Final document April 15 2014
bull General limit 25 of tier 1 capital
bull For intra-GSIB exposures limit 15 (to reduce the
interconnectedness between GSIBs)
bull Definition (for reporting purposes) any exposure ge10 of tier 1 capital
bull Applies to single counterparty and connected counterparties
15
New standard Large exposures
bull Framework ignores credit quality of counterpartyBut takes CCFs and financial collateral into account
Covered bonds subject to 20 ldquoCCFrdquo - If certain maximum LTVs apply
Sovereigns and their central banks exempted
bull No exemption for interbank exposures beyond intra-dayBut subject to review clause (by 2016)
bull To be implemented by 2019
16
Better supervision
bull Sound management of risks related to money laundering and financing of terrorism (Jan 2014) AML from the banking supervisor perspective ref for CP 29
bull External audits of banks (Mar 2014) Supervisory expectations and relationship with external auditors ref for CP 27
bull Principles for effective supervisory colleges (Jun 2014) Crisis management groups (CMGs) macroprudential considerations
bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) Emphasis on early intervention corrective action and the use of recovery and
resolution tools Discussion on public solvency and liquidity support in exceptional circumstances
bull Corporate governance principles for banks (Jul 2015) Expanded guidance on the role of the board of directors and its collective
competence risk governance guidance role of compensation and incentives17
III Looking ahead
18
Implementation monitoring and assessing
Risk-based capital RCAPs ndash continue with remaining BCBS countries
Integrate LCR and SIB-treatment
Senior review group to be established
19
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Pillar 3
bull Issued January 2015 start on end 2016
bull Main elements
a) Transparency of the internal model-based approaches
b) Comparability use of templates for quantitative disclosure accompanied with definitions some of them with a fixed format
13
Basel III implementation Global Picture
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf14
Country SA FIRB
AIRB
BIA TSA AMA
P2 P3 Rev P1
Suppl P
2
Rev P3
Mkt
risk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cyc
l
LR D-SIB
s
G-SIB
s
AngolaBotswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Africa
Asia-Pacific
Europe
WesternHemisphere
Middle Eastamp Central
Asia
New standard Large exposures
bull Final document April 15 2014
bull General limit 25 of tier 1 capital
bull For intra-GSIB exposures limit 15 (to reduce the
interconnectedness between GSIBs)
bull Definition (for reporting purposes) any exposure ge10 of tier 1 capital
bull Applies to single counterparty and connected counterparties
15
New standard Large exposures
bull Framework ignores credit quality of counterpartyBut takes CCFs and financial collateral into account
Covered bonds subject to 20 ldquoCCFrdquo - If certain maximum LTVs apply
Sovereigns and their central banks exempted
bull No exemption for interbank exposures beyond intra-dayBut subject to review clause (by 2016)
bull To be implemented by 2019
16
Better supervision
bull Sound management of risks related to money laundering and financing of terrorism (Jan 2014) AML from the banking supervisor perspective ref for CP 29
bull External audits of banks (Mar 2014) Supervisory expectations and relationship with external auditors ref for CP 27
bull Principles for effective supervisory colleges (Jun 2014) Crisis management groups (CMGs) macroprudential considerations
bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) Emphasis on early intervention corrective action and the use of recovery and
resolution tools Discussion on public solvency and liquidity support in exceptional circumstances
bull Corporate governance principles for banks (Jul 2015) Expanded guidance on the role of the board of directors and its collective
competence risk governance guidance role of compensation and incentives17
III Looking ahead
18
Implementation monitoring and assessing
Risk-based capital RCAPs ndash continue with remaining BCBS countries
Integrate LCR and SIB-treatment
Senior review group to be established
19
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Basel III implementation Global Picture
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf14
Country SA FIRB
AIRB
BIA TSA AMA
P2 P3 Rev P1
Suppl P
2
Rev P3
Mkt
risk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cyc
l
LR D-SIB
s
G-SIB
s
AngolaBotswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Africa
Asia-Pacific
Europe
WesternHemisphere
Middle Eastamp Central
Asia
New standard Large exposures
bull Final document April 15 2014
bull General limit 25 of tier 1 capital
bull For intra-GSIB exposures limit 15 (to reduce the
interconnectedness between GSIBs)
bull Definition (for reporting purposes) any exposure ge10 of tier 1 capital
bull Applies to single counterparty and connected counterparties
15
New standard Large exposures
bull Framework ignores credit quality of counterpartyBut takes CCFs and financial collateral into account
Covered bonds subject to 20 ldquoCCFrdquo - If certain maximum LTVs apply
Sovereigns and their central banks exempted
bull No exemption for interbank exposures beyond intra-dayBut subject to review clause (by 2016)
bull To be implemented by 2019
16
Better supervision
bull Sound management of risks related to money laundering and financing of terrorism (Jan 2014) AML from the banking supervisor perspective ref for CP 29
bull External audits of banks (Mar 2014) Supervisory expectations and relationship with external auditors ref for CP 27
bull Principles for effective supervisory colleges (Jun 2014) Crisis management groups (CMGs) macroprudential considerations
bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) Emphasis on early intervention corrective action and the use of recovery and
resolution tools Discussion on public solvency and liquidity support in exceptional circumstances
bull Corporate governance principles for banks (Jul 2015) Expanded guidance on the role of the board of directors and its collective
competence risk governance guidance role of compensation and incentives17
III Looking ahead
18
Implementation monitoring and assessing
Risk-based capital RCAPs ndash continue with remaining BCBS countries
Integrate LCR and SIB-treatment
Senior review group to be established
19
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
New standard Large exposures
bull Final document April 15 2014
bull General limit 25 of tier 1 capital
bull For intra-GSIB exposures limit 15 (to reduce the
interconnectedness between GSIBs)
bull Definition (for reporting purposes) any exposure ge10 of tier 1 capital
bull Applies to single counterparty and connected counterparties
15
New standard Large exposures
bull Framework ignores credit quality of counterpartyBut takes CCFs and financial collateral into account
Covered bonds subject to 20 ldquoCCFrdquo - If certain maximum LTVs apply
Sovereigns and their central banks exempted
bull No exemption for interbank exposures beyond intra-dayBut subject to review clause (by 2016)
bull To be implemented by 2019
16
Better supervision
bull Sound management of risks related to money laundering and financing of terrorism (Jan 2014) AML from the banking supervisor perspective ref for CP 29
bull External audits of banks (Mar 2014) Supervisory expectations and relationship with external auditors ref for CP 27
bull Principles for effective supervisory colleges (Jun 2014) Crisis management groups (CMGs) macroprudential considerations
bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) Emphasis on early intervention corrective action and the use of recovery and
resolution tools Discussion on public solvency and liquidity support in exceptional circumstances
bull Corporate governance principles for banks (Jul 2015) Expanded guidance on the role of the board of directors and its collective
competence risk governance guidance role of compensation and incentives17
III Looking ahead
18
Implementation monitoring and assessing
Risk-based capital RCAPs ndash continue with remaining BCBS countries
Integrate LCR and SIB-treatment
Senior review group to be established
19
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
New standard Large exposures
bull Framework ignores credit quality of counterpartyBut takes CCFs and financial collateral into account
Covered bonds subject to 20 ldquoCCFrdquo - If certain maximum LTVs apply
Sovereigns and their central banks exempted
bull No exemption for interbank exposures beyond intra-dayBut subject to review clause (by 2016)
bull To be implemented by 2019
16
Better supervision
bull Sound management of risks related to money laundering and financing of terrorism (Jan 2014) AML from the banking supervisor perspective ref for CP 29
bull External audits of banks (Mar 2014) Supervisory expectations and relationship with external auditors ref for CP 27
bull Principles for effective supervisory colleges (Jun 2014) Crisis management groups (CMGs) macroprudential considerations
bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) Emphasis on early intervention corrective action and the use of recovery and
resolution tools Discussion on public solvency and liquidity support in exceptional circumstances
bull Corporate governance principles for banks (Jul 2015) Expanded guidance on the role of the board of directors and its collective
competence risk governance guidance role of compensation and incentives17
III Looking ahead
18
Implementation monitoring and assessing
Risk-based capital RCAPs ndash continue with remaining BCBS countries
Integrate LCR and SIB-treatment
Senior review group to be established
19
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Better supervision
bull Sound management of risks related to money laundering and financing of terrorism (Jan 2014) AML from the banking supervisor perspective ref for CP 29
bull External audits of banks (Mar 2014) Supervisory expectations and relationship with external auditors ref for CP 27
bull Principles for effective supervisory colleges (Jun 2014) Crisis management groups (CMGs) macroprudential considerations
bull Supervisory guidelines for identifying and dealing with weak banks (Jul 2015) Emphasis on early intervention corrective action and the use of recovery and
resolution tools Discussion on public solvency and liquidity support in exceptional circumstances
bull Corporate governance principles for banks (Jul 2015) Expanded guidance on the role of the board of directors and its collective
competence risk governance guidance role of compensation and incentives17
III Looking ahead
18
Implementation monitoring and assessing
Risk-based capital RCAPs ndash continue with remaining BCBS countries
Integrate LCR and SIB-treatment
Senior review group to be established
19
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
III Looking ahead
18
Implementation monitoring and assessing
Risk-based capital RCAPs ndash continue with remaining BCBS countries
Integrate LCR and SIB-treatment
Senior review group to be established
19
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Implementation monitoring and assessing
Risk-based capital RCAPs ndash continue with remaining BCBS countries
Integrate LCR and SIB-treatment
Senior review group to be established
19
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Regulatory Consistency Assessment Program
bull Most countries implemented according to the internationally-agreed schedule
bull All countries rated overall compliant except for the EU and US
bull Some inconsistencies exist in all countries
bull Not all deviations are sub-equivalent
bull A relatively large variance in RWAs based on internal models is a common problem
Timeline of RCAP assessments
Finalized
bull Australia Brazil Canada China EU Japan Singapore Switzerland USA Mexico Hong Kong SAR India Saudi Arabia South Africa
Ongoingbull Russia
Plannedbull Argentina Indonesia Korea Turkey
20
Main RCAP findings
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
21
bull Significant RWA variation across banksFor both TB and BB standard deviation of 24
to 30 from the mean
Banking book using a benchmark portfolio differences in PD and LGD could result in CAR variation of up to 20
Outliers dispersion up to 8 times
bull Drivers similar for TB and BBAbout 75 of dispersion explained by
underlying differences in portfolios
25 of dispersion explained by different practices and supervisory options
Thematic BCBS Assessments RWA variation
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Policy response optionsbull Some RW variation desirable
Portfolio choices
Marketeconomic cycle differences
Healthy diversity in risk models
bull Excessive variation to be addressed Undermines credibility of capital standard
Impairs comparability of banks
Distorts the level playing field
Hampers the functioning of financial markets
bull Policy options Increase disclosure
Review national discretions
Introduce benchmarks and floors
Constrain the use of models
22
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Work-in-progress
bull Credit market and operational risks
Review of the standardized approaches
bull Consultation document released on 22 December 2014 to be finalized at end-2015
bull Floors based on 1988 Accord not meaningful anymore need to mitigate model risk
bull Comparability of capital outcomes across banks
bull Two types of floors under consideration Risk category-based floor and Aggregate RWA-based floor
Capital Floors
23
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Review of credit risk standardized approach
bull Why
ndash Overreliance on external credit ratings
ndash Lack of granularity and risk sensitivity
ndash Out-of-date calibrations
ndash Lack of comparability and misalignment with IRB
ndash Excessive complexity and lack of clarity
24
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Review of operational risk standardized approach
bull Whyndash Weaknesses in the current approach
bull Op risk capital requirements stablefalling despite increase in op risk incidents
bull Use of Gross Income and the past calibration not valid anymore
bull Howndash Only 1 standardized approach instead of 3 (BIA TSA ASA)ndash Introducing the concept of Business indicator (BI) which are
based onbull Interest component (Interest income minus interest expenses)bull Services component (Fee income + expenses + other operating
income and expenses)bull Financial component (Net PampL on trading and banking book)
ndash Calibration based on 5 buckets
25
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Fundamental review of the trading book
bull Three consultative documents May 2012 Oct 2013 and December 2014
bull Complications boundaries between trading book and banking book and how to move between them
bull Standardized approach how to improve sensitivity without requiring unreasonable IT requirementshellip
bull Internal models how to better factor in liquidity
26
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Main themes
Policy development
Balance between Simplicity Comparability and Risk Sensitivity
Implementation monitoring and assessing
Improving effectiveness of supervision
27
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Policy development
Revisions to existing methods of measuring risk-weighted assets
Interaction coherence and overall calibration of framework (including leverage ratio)
Reviewing the regulatory treatment of sovereign risk (in a careful holistic and gradual manner)
Assessing the role of stress testing
28
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Balance between Simplicity Comparability and Risk Sensitivity
Restore confidence in risk-weighted capital ratios
Consolidate regulatory capital and liquidity standards into a single standard
Strategic capital review (including models and AMA)
Greater constraints on risk model parameters
Likely to continue to be based on multiple metrics internal models standardized approaches leverage ratio
29
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Improving effectiveness of supervision several projects
Dealing with weak banks corporate governance expected credit losses
Exchange views on Pillar 2 approaches
Colleges
Impact and accountability
Prudential treatment of assets
30
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Leverage Ratio KA
Basel 1
KRWA
Basel 2 2006
KRWA
Basel 25 2011
Basel 3 2013
KRWA + KA
Back to the future
bull Unavoidable tension between ldquorisk-sensitivityrdquo and ldquosimplicity transparency comparabilityrdquo
bull No simple solution since real world is not simple
31
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
QUESTIONS
32
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
BACKGROUND SLIDES
33
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
34
Phase-in Arrangements
Phases 2013 2014 2015 2016 2017 2018 2019
Leverage Ratio
Migration to
Pillar 1
Minimum Common Equity Capital Ratio350 400 45
Capital Conservation Buffer 063 125 188 25
Minimum common equity plus capital conservation
buffer 350 400 450 513 575 638 70
Phase-in of deductions from CET120 40 60 80 100 100
Minimum Tier 1 Capital450 550 60
Minimum Total Capital 80
Minimum Total Capital plus conservation buffer863 925 988 105
Capital instruments that no longer qualify as 13
non-core Tier 1 capital or Tier 2 capital
Liquidity coverage ratio ndash minimum requirement60 70 80 90 100
Net stable funding ratio Introduce minimum
standard
Including amounts exceeding the limit for deferred tax assets (DTAs) mortgage servicing rights (MSRs) and financials
transition periods
Ca
pit
al
Liq
uid
ity
Parallel run Jan 1 2013 ndash Jan 1 201713
Disclosure starts Jan 1 2015
450
600
800
800
Phased out over 10 year horizon beginning 2013
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Information on implementation status
bull FSI survey httpwwwbisorgfsifsiop2014htm
Large coverage - 120 jurisdictions
Self-declaratory
Does not assess consistency of implementation
bull BCBS Basel III implementation
monitoringhttpwwwbisorgbcbsimplementationhtmm=37C147C587
Consistency of implementation in 27 members (RCAP reports)
QIS monitoring with aggregate data on capital liquidity leverage
Thematic assessments examine bank implementation of the Basel
requirements and seek to ensure consistency (RWA variability)
35
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Basel Framework Implementation in Asia amp Pacific
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Australia
Bangladesh
Bhutan
China
Chinese Taipei
Cook Islands
Fiji
Hong Kong SAR
India
Indonesia
Japan
Korea
Macao
Malaysia
Nepal
New Zeland
Pakistan
Papua New Guinea
Philippines
Singapore
Sri Lanka
Thailand
Vietnam
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf36
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Basel Framework Implementation in Africa
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Angola
Botswana
Congo DR
Gambia
Ghana
Guinea Rep of
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Seychelles
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf37
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Basel Framework Implementation in Europe
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Albania
Belarus
Belgium
Bosnia and Herzegovina
France
Germany
Gibraltor
Guernsey
Iceland
Isle of Man
Italy
Jersey
Kosovo
Liechtenstein
Luxembourg
Macedonia
Moldova
Montenegro
Norway
Russia
Serbia
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf38
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Basel Framework Implementation in the Western Hemisphere
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Argentina
Bahamas
Barbados
Belize
Bermuda
Bolivia
Brazil
British Virgin Islands
Canada
Cayman Islands
Chile
Colombia
Costa Rica
Curaccedilao and Sint Maarten
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Panama
Paraguay
Peru
Trinidad and Tobago
Turks and Caicos Islands
United States
Uruguay
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf39
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40
Basel Framework Implementation in the Middle East amp Central Asia
Country SA FIRB
AIRB
BIA TSAAM
AP2 P3 Rev P
1
Suppl P2
Rev P3
Mkt r
isk
Liq (L
CR)
Def cap
Risk co
v
Conserv
C-cycl
LR D-SIB
s
G-SIB
s
Armenia
Bahrain
Egypt
Georgia
Jordan
Kuwait
Kyrgyz Republic
Lebanon
Morocco
Oman
Qatar
Saudi Arabia
Tunisia
Turkey
United Arab Emirates
Basel 2 Basel 25 Basel 3
indicates no implementation to-date indicates implementation in-progress indicates implementation complete final rule in-force
______________________
Sources Bank for International Settlements 2014 ldquoFSI Survey Basel II 25 and III Implementation ttpwwwbisorgfsifsiop2014pdf Bank for
International Settlements 2014 ldquoProgress Report on Implementation of the Basel Regulatory Frameworkrdquo httpwwwbisorgpublbcbs281pdf40