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1 What is going on in Basel? by Michaela Erbenova Monetary and Capital Markets Department International Monetary Fund Seminar for Senior Bank Supervisors from Emerging Economies October 19, 2015

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Page 1: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 2: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 3: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 4: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 5: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 6: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 7: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 8: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 9: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 10: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 11: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 12: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 13: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 14: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 15: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 16: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 17: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 18: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 19: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 20: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 21: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 22: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 23: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 24: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 25: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 26: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 27: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 28: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 29: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 30: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 31: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 32: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 33: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 34: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 35: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 36: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 37: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 38: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 39: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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

Page 40: What is going on in Basel? - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2015/11/... · 1 What is going on in Basel? by ... Important consultative guidance doc: ... Basel I

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