Comments on: BCBS – Basel Committee on Banking Supervision http://www.kasinomics.com/articles/bcbs/ Economics of Knowledge And Social Intelligence Tue, 07 Feb 2012 08:04:25 +0000 hourly 1 http://wordpress.org/?v=3.3 By: Rajnish Ramchurun http://www.kasinomics.com/articles/bcbs/comment-page-1/#comment-41980 Rajnish Ramchurun Wed, 24 Aug 2011 13:02:59 +0000 http://www.kasinomics.com/?p=40#comment-41980 “Basel III” is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector. These measures aim to: 1. improve the banking sector’s ability to absorb shocks arising from financial and economic stress, whatever the source 2. improve risk management and governance 3. strengthen banks’ transparency and disclosures. The reforms target both micro and macro prudential regulation. Micro Prudential Regulation At bank-level, or microprudential, regulation, they will help raise the resilience of individual banking institutions to periods of stress. Practically, these reforms mean: A significant increase in risk coverage, with a focus on areas that were most problematic during the crisis, that is trading book exposures, counterparty credit risk, and securitisation activities; A fundamental tightening of the definition of capital, with a strong focus on common equity. At the same time, this represents a move away from complex hybrid instruments, which did not prove to be loss absorbing in periods of stress. We also introduced requirements that all capital instruments must absorb losses at the point of non-viability, which was not the case in the crisis; The introduction of a leverage ratio to serve as a backstop to the risk-based framework; The introduction of global liquidity standards to address short-term and longterm liquidity mismatches; and Enhancements to Pillar 2’s supervisory review process and Pillar 3’s market discipline, particularly for trading and securitisation activities. Macro Prudential Regulation In addition, a unique feature of Basel III is the introduction of macroprudential elements into the capital framework. At macroprudential, they wlll help to deal with system wide risks that can build up across the banking sector as well as the procyclical amplification of these risks over time. These include: Standards that promote the build-up of capital buffers in good times that can be drawn down in periods of stress, as well as clear capital conservation requirements to prevent the inappropriate distribution of capital; The leverage ratio also has system-wide benefits by preventing the excessive build-up of debt across the banking system during boom times. To minimise the transition costs, the Basel III requirements will be phased in gradually as of 1 January 2013. These two approaches to supervision are complementary as greater resilience at the individual bank level reduces the risk of system wide shocks. Basel III is part of the Committee’s continuous effort to enhance the banking regulatory framework. It builds on the International Convergence of Capital Measurement and Capital Standards document (Basel II). Sources Basel III: stronger banks and a more resilient financial system Speech by Stefan Walter, Secretary General, Basel Committee on Banking Supervision, at a Conference on Basel III by the Financial Stability Institute, Basel, 6 April 2011. International regulatory framework for banks (Basel III) Available at: http://www.bis.org/bcbs/basel3.htm Prepared by: Rajnish Ramchurun B.Sc(Hons), MBA, ACCA, MIPA, Associate ACFE, Basic Member OCEG, Member Basel III Compliance Professionals Association, IFAC Online Registered User, AICPA Online registered User, IFRS Online Registered User. “Basel III” is a comprehensive set of reform measures, developed by the
Basel Committee on Banking Supervision, to strengthen the regulation,
supervision and risk management of the banking sector. These measures aim
to:
1. improve the banking sector’s ability to absorb shocks arising from
financial and economic stress, whatever the source
2. improve risk management and governance
3. strengthen banks’ transparency and disclosures.
The reforms target both micro and macro prudential regulation.
Micro Prudential Regulation
At bank-level, or microprudential, regulation, they will help raise the resilience
of individual banking institutions to periods of stress. Practically, these reforms
mean:
A significant increase in risk coverage, with a focus on areas that were most
problematic during the crisis, that is trading book exposures, counterparty
credit risk, and securitisation activities;
A fundamental tightening of the definition of capital, with a strong focus on
common equity. At the same time, this represents a move away from complex
hybrid instruments, which did not prove to be loss absorbing in periods of
stress. We also introduced requirements that all capital instruments must
absorb losses at the point of non-viability, which was not the case in the crisis;
The introduction of a leverage ratio to serve as a backstop to the risk-based
framework;
The introduction of global liquidity standards to address short-term and longterm
liquidity mismatches; and
Enhancements to Pillar 2’s supervisory review process and Pillar 3’s market
discipline, particularly for trading and securitisation activities.
Macro Prudential Regulation
In addition, a unique feature of Basel III is the introduction of macroprudential
elements into the capital framework. At macroprudential, they wlll help to deal
with system wide risks that can build up across the banking sector as well as
the procyclical amplification of these risks over time. These include:
Standards that promote the build-up of capital buffers in good times that can
be drawn down in periods of stress, as well as clear capital conservation
requirements to prevent the inappropriate distribution of capital;
The leverage ratio also has system-wide benefits by preventing the excessive
build-up of debt across the banking system during boom times.
To minimise the transition costs, the Basel III requirements will be phased in
gradually as of 1 January 2013.
These two approaches to supervision are complementary as greater
resilience at the individual bank level reduces the risk of system wide shocks.
Basel III is part of the Committee’s continuous effort to enhance the banking
regulatory framework. It builds on the International Convergence of Capital
Measurement and Capital Standards document (Basel II).

Sources

Basel III: stronger banks and a more resilient financial system
Speech by Stefan Walter, Secretary General, Basel Committee on Banking
Supervision, at a Conference on Basel III by the Financial Stability Institute,
Basel, 6 April 2011.

International regulatory framework for banks (Basel III)
Available at: http://www.bis.org/bcbs/basel3.htm

Prepared by: Rajnish Ramchurun
B.Sc(Hons), MBA, ACCA, MIPA, Associate ACFE, Basic Member OCEG, Member Basel III
Compliance Professionals Association, IFAC Online Registered User, AICPA Online
registered User, IFRS Online Registered User.

]]> By: Kasinomics » Blog Archive » Summary of the recommendations of the Meltzer-Report http://www.kasinomics.com/articles/bcbs/comment-page-1/#comment-136 Kasinomics » Blog Archive » Summary of the recommendations of the Meltzer-Report Sun, 27 Apr 2008 09:32:56 +0000 http://www.kasinomics.com/?p=40#comment-136 [...] adequate bodies would not be the IMF and the BIS, but the BCBS and other international bodies such as IOSCO or [...] [...] adequate bodies would not be the IMF and the BIS, but the BCBS and other international bodies such as IOSCO or [...]

]]> By: Kasinomics » Blog Archive » Corporate Governance and International Standards - Paper by Kern Alexander and Rahul Dhumale http://www.kasinomics.com/articles/bcbs/comment-page-1/#comment-70 Kasinomics » Blog Archive » Corporate Governance and International Standards - Paper by Kern Alexander and Rahul Dhumale Mon, 21 Apr 2008 13:30:17 +0000 http://www.kasinomics.com/?p=40#comment-70 [...] the BCBS and the OECD have released Corporate Governance Principles (the OEDC in 2004, the BCBS in 2006) [...] [...] the BCBS and the OECD have released Corporate Governance Principles (the OEDC in 2004, the BCBS in 2006) [...]

]]>