Last checked for updates: 28/9/2015
The Banking Committee on Banking Supervision (BCBS) introduced a number of fundamental reforms to the international regulatory framework to strengthen the regulation, supervision and risk management of the banking sector. The reforms known as “Basel III” introduce more onerous capital requirements for credit institutions and amend the existing standards of Basel I and II.
The broad outline of the Basel III framework was agreed in 2009 by the Basel Committee's oversight body and was further developed throughout the course of 2010. In December 2010 the Basel Committee issued two publications containing a near final version of its new rules and followed in January 2011 with the final elements of reform to the redefinition of regulatory capital. The three publications, collectively known as Basel III, change significantly the capital, liquidity and leverage rules for international banks.
The introduction of the leverage ratio a non-risk based "backstop" measure will restrict the build-up of excessive leverage in the banking sector. Basel III's leverage ratio is defined as the "capital measure" (the numerator) divided by the "exposure measure" (the denominator) and is expressed as a percentage. The capital measure is currently defined as Tier 1 capital and the minimum leverage ratio is 3%.The final calibration, and any further adjustments to the definition, will be completed by 2017, with a view to migrating to a binding Pillar 1 (minimum capital requirement) treatment on 1 January 2018.
The Liquidity Coverage Ratio (LCR) (revised in January 2014) aims to promote short-term resilience of a bank’s liquidity risk profile by requiring banks to have sufficient high quality liquid assets to withstand a 30-day stressed funding scenario that is specified by supervisors. The liquidity framework includes a common set of monitoring metrics to assist supervisors in identifying and analysing liquidity risk trends at both the bank and system-wide level.
The Net Stable Funding Ratio (NSFR) complements the LCR and is designed to promote prudent funding structures by banks. It is a longer-term structural ratio designed to address liquidity mismatches. The NSFR covers the entire balance sheet and provides incentives for banks to use prevent over-reliance on short-term wholesale funding. The NSFR was finalised on 31 October 2014 by the BCBS.
Basel III also introduces a common set of monitoring tools.
The Basel III rules are implemented in the European Union by means of Capital Requirements Directive 2013/36/EU (CRD IV) and Regulation 575/2013/EU (CRR)
- Capital Requirements Directive (CRD IV) 2013/36/EU
- Capital Requirements Regulation (CRR) 575/2013/EU
16 September 2015 - The Basel Committee has updated its responses to frequently asked questions regarding Basel III monitoring.
15 September 2015 - The Basel Committee has published the results of its latest Basel III monitoring exercise. The results of the exercise assumed the final Basel III package is fully in force, based on data as of 31 December 2014 and do not take account of the transitional arrangements set out in the Basel III framework, such as the gradual phase-in of deductions from regulatory capital. The results indicate that:
- all large internationally active banks meet the Basel III risk-based capital minimum requirements as well as the Common Equity Tier 1 (CET1) target level of 7.0%;
- there is no capital shortfall for Group 2 banks included in the sample for the CET1 minimum of 4.5%;
- the average CET1 capital ratios under the Basel III framework across the same sample of banks were 11.1% for Group 1 banks and 12.3% for Group 2 banks.
The report also indicated that:
- The weighted average LCR for the Group 1 bank sample was 125% on 30 June 2014 and 144% for Group 2 banks. For banks in the sample, 85% reported an LCR that met or exceeded 100%, while 98% reported an LCR at or above 60%; and
- the weighted Net Stable Funding Ratio (NSFR) for the Group 1 bank sample was 111%, with 114% for Group 2 banks. 75% of the Group 1 banks and 85% of the Group 2 banks had a ratio that met or exceeded 100%. 92% of the Group 1 banks and 93% of the Group 2 banks reported an NSFR at or above 90%.
All data, including for previous reporting dates, reflect revisions received up to 28 August 2015 with the exception of Table A.20, which was revised on 21 September 2015.
15 September 2015 - The EBA has published its eighth report of the Basel III monitoring exercise on the European banking system. This exercise, run in parallel with the one conducted by the Basel Committee on Banking Supervision (BCBS) at a global level, allows the gathering of aggregate results on capital ratios and leverage ratio (LR), as well as on liquidity ratios - liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) - for banks in the European Union (EU).
The exercise monitors the impact of the transposition of the Basel III requirements on EU banks. In particular, it monitors the impact of fully-implemented Capital Requirements Directive and Regulation (CRD IV/CRR) on capital and risk-weighted assets (RWA), and the impact of fully implementing the Basel III framework on leverage ratio (LR) and liquidity ratios (LCR and NSFR) using data as of December 2014 under a static balance sheet assumption.
- EBA: Press release
- EBA: CRD IV-CRR/Basel III monitoring exercise report - Results based on data as of 31 December 2014
10 September 2015 - The Building Societies Association BSA has responded to the BCBS June consultation on interest rate in the banking book. The BSA’s members, the 44 UK building societies, all experience interest rate risk in the banking book (IRRBB,) though none is a “Basel bank” - i.e. a large, internationally-active bank. The BSA's concern is that the finalised Basel proposals, when rolled out to domestic entities, will prove over-complex and unsuitable for, in particular, smaller members, and as a result will have anti-competitive effect.
7 September 2015 - The Basel Committee has published updated versions of its Basel III monitoring workbook and FAQs.
19 August 2015 - The Basel Committee on Banking Supervision (BCBS) has received a number of interpretation questions related to the Standardised Approach for measuring counterparty credit risk (SA-CCR), as published in March 2014 (and revised in April 2014). The SA-CCR will replace both current non-internal model approaches, the Current Exposure Method (CEM) and the Standardised Method (SM). To help ensure consistent global implementation of its standards, the Committee has agreed to periodically review frequently asked questions and publish answers along with any technical elaboration of the standards and interpretative guidance that may be necessary. This document presents a set of frequently asked questions that relate to the SA-CCR.
31 July 2015 - The BCBS has published an updated set of FAQs on Basel III monitoring. This document provides answers to technical and interpretive questions raised by supervisors and banks during the Committee’s Basel III monitoring. Questions which have been revised (other than updated cell references) are shaded red.
7 July 2015 - The BCBS has published a document setting out the first and second set of FAQs that relate to the Basel III leverage ratio framework. The questions and answers are grouped according to different relevant areas:
- criteria for the recognition of cash variation margin associated with derivative exposures;
- centrally cleared client derivative exposures;
- exposures and netting of securities financing transactions (SFTs);
- the treatment of netting of SFTs and derivatives under a cross-product netting agreement;
- the exposure measure under the additional treatment for credit derivatives; and
- the treatment of long settlement transactions and failed trades.
- Frequently asked questions on the Basel III leverage ratio framework
1 July 2015 - The Basel Committee on Banking Supervision is reviewing the Credit Valuation Adjustment (CVA) risk framework. The objectives of the review are to:
- ensure that all important drivers of credit valuation adjustment (CVA) risk and CVA hedges are covered in the Basel regulatory capital standard;
- align the capital standard with the fair value measurement of CVA employed under various accounting regimes; and
- ensure consistency with the proposed revisions to the market risk framework under the Basel Committee's Fundamental review of the trading book.
Responses to the consultation are due by 1 October 2015.
22 June 2015 - The Basel Committee on Banking Supervision issued disclosure requirements for the Net Stable Funding Ratio (NSFR), following the publication of the NSFR standard in October 2014. The NFSR disclosure template includes the major categories of sources and uses of stable funding. Banks will be required to comply with the disclosure requirements from the date of the first reporting period after 1 January 2018.
15 June 2015 - The Basel Committee on Banking Supervision published reports assessing the implementation of the Basel risk-based capital framework and the Liquidity Coverage Ratio (LCR) for India and South Africa. These form part of a series of reports on Basel Committee members' implementation of Basel standards under the Committee's Regulatory Consistency Assessment Programme (RCAP).
8 June 2015 - The Basel Committee on Banking Supervision issued a consultative document on the risk management, capital treatment and supervision of interest rate risk in the banking book (IRRBB). This consultative document expands upon and is intended to ultimately replace the Basel Committee's 2004 Principles for the management and supervision of interest rate risk.
27 April 2015 - The Basel Committee has published its eighth progress report on the adoption of the Basel regulatory framework. The update provides a high-level overview of Basel Committee members' progress in adopting Basel II, Basel 2.5 and Basel III standards as of the end of March. The report focuses on the status of domestic rule-making processes to ensure that the Basel standards are transformed into national law or regulation according to the internationally agreed timeframes. The report includes the status of adoption of the risk-based capital standards, the standards for global and domestic systemically important banks (SIBs), the Basel III leverage ratio and the liquidity coverage ratio (LCR).
2 April 2015 - The Basel Committee published updated FAQs on Basel III monitoring. Questions which have been added since the previous version of the FAQs are shaded yellow; questions which have been revised (other than updated cell references) are shaded red.
3 March 2015 - The Basel Committee has published the results of its latest Basel III monitoring exercise. A total of 224 banks participated in the current study, comprising 98 large internationally active banks "Group 1 banks", defined as internationally active banks that have Tier 1 capital of more than €3 billion) and 126 Group 2 banks (ie representative of all other banks). The results of the monitoring exercise assume that the final Basel III package is fully in force, based on data as of 30 June 2014.
The weighted average LCR for the Group 1 bank sample was 121% on 30 June 2014, up from 119% six months earlier. For Group 2 banks, the weighted average LCR was 140%, up from 132% six months earlier. For banks in the sample, 80% reported an LCR that met or exceeded 100%, while 96% reported an LCR at or above 60%.
The weighted average NSFR for the Group 1 bank sample was 110% while for Group 2 banks the average NSFR was 114%. As of June 2014, 80% of the 212 banks in the NSFR sample reported a ratio that met or exceeded 100%, while 92% of the banks reported an NSFR at or above 90%. (Based on analysis of data collected under the consultative document issued in January 2014 prior to the revised standard of October 2014.)
28 January 2015 - The Basel Committee on Banking Supervision (BCBS) has issued the final standard for the revised Pillar 3 disclosure requirements. The revised disclosure requirements will enable market participants to compare banks' disclosures of risk-weighted assets. The revisions focus on improving the transparency of the internal model-based approaches that banks use to calculate minimum regulatory capital requirements.
The revised standard published retains the structure of the Committee's June 2014 consultative paper. Compared with the consultative version, the key changes involve:
- rebalancing the disclosures required quarterly, semi-annually and annually;
- streamlining the requirements related to disclosure of credit risk exposures and credit risk mitigation techniques; and
- clarifying and streamlining the disclosure requirements for securitisation exposures.
The revised requirements will take effect from end-2016. They supersede the existing Pillar 3 disclosure requirements first issued as part of the Basel II framework in 2004 and the Basel 2.5 revisions and enhancements introduced in 2009.
- BCBS: Revised Pillar 3 disclosure requirements 28 January 2015
22 December 2014 - the Basel Committee on Banking Supervision (BCBS) has released a consultative document on Revisions to the Standardised Approach for credit risk. The proposed revisions seek to strengthen the existing regulatory capital standard in several ways. These include:
- reduced reliance on external credit ratings;
- enhanced granularity and risk sensitivity;
- updated risk weight calibrations, which for purposes of this consultation are indicative risk weights and will be further informed based on the results of a quantitative impact study;
- more comparability with the internal ratings-based (IRB) approach with respect to the definition and treatment of similar exposures; and;
- better clarity on the application of the standards.
The Committee is considering replacing references to external ratings, as used in the current standardised approach, with a limited number of risk drivers that provide a meaningful differentiation for risk however the Committee acknowledges that such proposals are still at an early stage of development. The key aspects of the proposals are:
- Bank exposures: would no longer be risk-weighted by reference to the bank's external credit rating or that of its sovereign of incorporation, would instead be based on two risk drivers: the bank's capital adequacy and its asset quality.
- Corporate exposures: would no longer be risk-weighted by reference to the borrowing firm's external credit rating, but would instead be based on the firm's revenue and leverage. Risk sensitivity and comparability with the IRB approach would be increased by introducing a specific treatment for specialised lending.
- Retail category: would be enhanced by tightening the criteria to qualify for a preferential risk weight, and by introducing an alternative treatment for exposures that do not meet the criteria.
- Residential real estate: would no longer receive a 35% risk weight. Instead, risk weights would be based on two commonly used loan underwriting ratios: the amount of the loan relative to the value of the real estate securing the loan (ie the loan-to-value ratio) and the borrower's indebtedness (ie a debt-service coverage ratio).
- Commercial real estate: two options are currently under consideration: (a) treating the exposures as unsecured with national discretion for a preferential risk weight under certain conditions; or (b) determining the risk weight based on the loan-to-value ratio.
- Credit risk mitigation: the framework would be amended by reducing the number of approaches, recalibrating supervisory haircuts and updating the corporate guarantor eligibility criteria.
The consultation period closes on 27 March 2015.
The BCBS has also launched a consultation on the structure of a capital floor framework based on standardised, non-internal modelled approaches. The proposed floor is designed to mitigate model risk and measurement error stemming from internally-modelled approaches, as well as enhance comparability across banks and ensure that the level of capital across the banking system does not fall below a certain level.
The consultation is part of a range of policy and supervisory measures from the Committee that aim to enhance the reliability and comparability of risk-weighted capital ratios. The Committee is taking steps to reduce variation in capital ratios between banks as noted in the Committee's November 2014 report to the G20 Leaders.
The consultation period closes on 27 March 2015.
- BCBS Consultative Document: Capital floors: the design of a framework based on standardised approaches
19 December 2014 -The BCBS published a consultation on the remaining issues for its fundamental review of the trading book capital standards. The consultation sets out a limited set of revisions to the Basel Committee’s proposed market risk framework published in October 2013. The paper outlines refinements in three areas:
- a specified treatment of internal risk transfers (IRTs) of equity risk and interest rate risk between the banking book and the trading book, to supplement the existing treatment of internal transfers of credit risk;
- a revised standardised approach that uses as inputs changes in the value of an instrument based on sensitivity to underlying risk factors, will allow for a more granular treatment of market risk factors; and
- a simpler method for incorporating the concept of liquidity horizons in the internal models approach, refinements have been made to reduce modelling complexity and data revalidation costs associated with incorporating the risk of varying market liquidity into the expected shortfall model.
Comments are due by 20 February 2015.
- BCBS Consultative Document: fundamental review of the trading book capital standards - outstanding issues
11 December 2014 - BCBS has published a Revised Framework in its final Basel III Document detailing changes to the international model rules for banks’ calculation of credit risk capital requirements for exposures to securitisation transactions. The revisions aim to address a number of shortcomings in the Basel II securitisation framework and to strengthen the capital standards for securitisation exposures. The main changes to the framework are:
Compared with the proposals included in the 2013 second consultative document, this final set of requirements includes amendments that smooth the impact of maturity on capital charges, along with a number of technical enhancements and clarifications.
The new framework will come into effect in January 2018.
9 December 2014 - The Basel Committee on Banking Supervision (BCBS) has launched a consultation on the proposed Net Stable Funding Ratio disclosure standards. This follows publication of the Net Stable Funding Ratio standard in October 2014. The disclosure requirements will be applicable to all internationally active banks on a consolidated basis but may be used for other banks and on any subset of entities of internationally active banks to ensure greater consistency and a level playing field between domestic and cross-border banks. Disclosure will be via a common template. Supervisors will give effect to the disclosure requirements by no later than 1 January 2018. Banks will be required to comply with these requirements from the date of the first reporting period after 1 January 2018.
Closing date for comments to the consultation is 6 March 2015.
5 December 2014 - The BCBS published a report assessing the implementation of the Basel III capital framework in the United States; and the nine EU Member States which are members of the BCBS.
The assessment was conducted under the Committee's Regulatory Consistency Assessment Programme (RCAP). The assessment of EU Member States was based on the Capital Requirements Regulation, the Capital Requirements Directive IV and the relevant national rules in place. The BCBS concluded that most of the components met the minimum provisions of the Basel III requirements. Four of the components were assessed as "largely compliant", reflecting the fact that most but not all provisions of the global standard were satisfied. The Internal Ratings-based (IRB) approach for credit risk was assessed to be "materially non-compliant" and another component found to be "non-compliant" related to the EU's counterparty credit risk framework, which provides an exemption from the Basel framework's credit valuation adjustment (CVA) capital charge for certain derivatives exposures.
The assessment of the US was based on the set of US regulations published in July 2013. It evaluated 13 of the 14 components of the risk-based capital standards as the US has implemented the Advanced Measurement Approaches for operational risk and opted to not implement the simpler approaches. The assessment concluded that most of the components are "compliant". with two - the securitisation framework and the standardised approach for market risk - being assessed as "materially non-compliant".
14 November 2014 - BIS published a working paper entitled The leverage ratio over the cycle . This paper analyses how the Basel III leverage ratio (Tier 1 capital/exposure) behaves over the cycle. The analysis proposes a setup to test for the cyclical properties of bank capital ratios, taking into account structural shifts in banks' behaviour during the global financial crisis and its aftermath.
12 November 2014 - The Basel Committee on Banking Supervision (BCBS) published two documents in preparation for the G20 Leaders’ summit in Brisbane on 15-16 November 2014.
- a report on measures to reduce excessive variability in banks’ regulatory capital ratios; and
- an update on the implementation of Basel III standards since the 2013 progress report to G20 Leaders.
Following on from its October 2014 consultation proposing revisions to the standardised approach for measuring operational risk capital, the BCBS expects to publish by year-end proposed revisions to the standardised approach for credit risk as well as a proposed capital floor. The BCBS is also assessing whether a considerable simplification of the Advanced Measurement Approach to operational risk is needed. The BCBS intends to finalise this work programme by end-2015.
The update report notes that all Committee members have implemented risk-based capital regulations and that efforts are now under way to adopt Basel III regulations for liquidity and leverage ratios as well as for global systemically important banks (G-SIBs) and domestic systemically important banks (D-SIBs).
The BCBS also published a report on the use of national discretions in implementing Basel standards, which is aimed at fostering transparency on the differences in implementation across member jurisdictions. The Basel standards include a number of national discretions that allow countries to adapt the international standards to reflect differences in the structure and development of financial systems.
5 November 2014 - The BCBS published a Keynote speech by Mr Stefan Ingves, Chairman of the Committee at the High-Level Meeting for the Americas in Lima on the progress of Basel III implementation. Mr Ingves commented on the importance of implementation and the progress made to date. He outlined the Basel Committee’s work on assessing implementation and the types of assessment conducted ie. jurisdictional assessments and RWA assessments. Mr Ingves set out remaining policy work including expanding the scope of its jurisdictional assessments, including liquidity and SIB standards from 2015 onwards. He also mentioned the policy proposals to be presented to the G20 Leaders later in November in Brisbane.
31 October 2014 - The BCBS issued the final standard for the Net Stable Funding Ratio (NSFR), as endorsed by the Committee's governing body, the Group of Central Bank Governors and Heads of Supervision (GHOS). The NSFR requires banks to maintain a stable funding profile in relation to their on- and off-balance sheet activities, thus reducing the likelihood that disruptions to a bank's regular sources of funding will erode its liquidity position in a way that could increase the risk of its failure and potentially lead to broader systemic stress.
The final NSFR retains the structure of the January 2014 consultative proposal. The key changes introduced in the final standard published today cover the required stable funding for:
- short-term exposures to banks and other financial institutions;
- derivatives exposures; and
- assets posted as initial margin for derivative contracts.
In addition, the final standard recognises that, under strict conditions, certain asset and liability items are interdependent and can therefore be viewed as neutral in terms of the NSFR.
The NSFR will become a minimum standard by 1 January 2018. The Basel Committee is developing disclosure standards for the NSFR and expects to publish them for consultation in December 2014.
7 October 2014 - The BCBS published FAQs on the Basel III leverage ratio which cover:
- criteria for the recognition of cash variation margin associated with derivative exposures;
- centrally cleared client derivative exposures;
- netting of securities financing transactions (SFTs);
- the treatment of netting SFTs and derivatives under a cross-product netting agreement;
- the exposure measure under the additional treatment for credit derivatives.;
6 October 2014 - The Committee has undertaken a fundamental review of the simpler approaches for operational risk based on extensive data relating to operational risk losses and exposure indicators from a wide range of banks. The Committee's preliminary findings, based on the existing data, indicate that the current standardised framework comprising the BIA, TSA and ASA is on average undercalibrated, especially for large and complex banks, and that Advanced Measurement Approaches (AMA) capital charges are often benchmarked against this undercalibrated capital requirement. This consultation paper sets out the Committee's proposed revisions to the standardised approach for measuring operational risk capital which attempt to improve the calibration while addressing the identified weaknesses. Once finalised, the revised standardised approach will replace the current non-model-based approaches, which comprise the Basic Indicator Approach (BIA) and the Standardised Approach (TSA), including its variant the Alternative Standardised Approach (ASA). In addition to streamlining the framework, the new approach will address weaknesses identified in the existing approaches. Comments are due by 6 January 2015.
3 October 2014 - The BCBS has issued its seventh Progress report on adoption of the Basel III Regulation Framework which sets out the adoption status of Basel II, Basel 2.5 and Basel III regulations for each Basel Committee member jurisdiction as of end-September 2014.
12 September 2014 - BIS published an updated version of the BCBS’s FAQs on Basel III monitoring. The document notes that questions added since the previous version of the FAQs are shaded in yellow; revised questions (other than updated cell references) are shaded red and can be found in Section 6.3 - revised standardised approach and Section 7 - operational risk.
- Basel III Monitoring - FAQs (12 September 2014)
11 September 2014 - the BCBS published the results of its latest Basel III monitoring exercise. The study is based on the rigorous reporting process set up by the Committee to periodically review the implications of the Basel III standards for banks. The results of previous exercises in this series were published in March 2014, September 2013, March 2013, September 2012 and April 2012. A total of 227 banks participated in the current study, comprising 102 large internationally active banks ("Group 1 banks", defined as internationally active banks that have Tier 1 capital of more than €3 billion) and 125 Group 2 banks (ie representative of all other banks). The results of the monitoring exercise assume that the final Basel III package is fully in force, based on data as of 31 December 2013.
8 September 2014 - the BCBS published an updated FAQ document on Basel III monitoring.
29 August 2014 - GFMA and the Institute of International Finance (IIF) have written a supplementary letter to the Basel Committee on the BCBS's consultation on the revised net funding ratio (NSFR). The letter highlights their concerns over the treatment of equities under the Revised NSFR, and the impact such treatment will have on the market and market participants, and makes several recommendations thereto. This follows an earlier letter sent in April this year.
4 August 2014 - BIS updated its webpage on Basel III current data collection exercises with an updated version (version 2.8.1) (for the collection of June 2014 data) of the BCBS Basel III implementation monitoring workbook.
20 July 2014 - the Basel Committee published the results of the Financial Stability Institute (FSI) survey on Basel II, 2.5 and III implementation in non-BCBS non-EU jurisdictions. The FSI disclosed the information it received from 90 non-BCBS/non-EU jurisdictions. The survey sets out responses in relation to Basel II implementation, which includes the Pillar 2 and Pillar 3 requirements released by the BCBS in 2006, and information relating to the implementation of Basel 2.5; and III.
26 June 2014 - the Basel Committee on Banking Supervision (BCBS) published a revised Principles for effective supervisory colleges. The revisions reflect the experience of Committee members in applying the original principles, published in 2010, together with emerging good practice in the role and operation of colleges. They draw on consultations with home and host supervisors, as well as internationally active banks.
Key revisions include:
- Greater emphasis on ongoing collaboration and information-sharing, as well as the expectation that home and host supervisors will put in place appropriate mechanisms and sufficient resources for effective and timely information exchange;
- Differentiation between colleges and crisis management groups (CMGs) for banks that are subject to both structures, eg systemically important banks, and guidance on possible communication and coordination between the college and the CMG on crisis preparedness; and
- Alignment across the principles on how macroprudential information is shared and used.
24 June 2014 - the BCBS published a consultation on its review of Pillar 3 disclosure requirements. The consultation paper sets out the findings of the first stage of the review by BCBS and sets out proposed revisions to the current disclosure requirements. The proposed revisions aim to enhance comparability across banks by ensuring greater consistency in the way they disclose information about risk exposures. The Basel Committee states that the revisions would not require banks to disclose additional information but to present the requirements in a “more detailed and prescriptive way”. The second phase will expand the scope of the review to include standards that are currently under development or being revised, together with additional disclosure requirements to further improve the comparability of banks’ risk profiles. The consultation period has been extended by two weeks and now closes on 10 October 2014.
18 June 2014 - the Basel Committee on Banking Supervision published a consultative document Supervisory guidelines for identifying and dealing with weak banks. The Committee is updating its guidelines in light of the significant developments that have transpired in global financial markets and the global regulatory landscape since the financial crisis. Once final, the guidelines will supersede the 2002 Committee guidance on the topic. Key changes to the guidelines include:
- emphasising the need for early intervention and the use of recovery and resolution tools, and updating supervisory communication policies for distressed banks;
- providing further guidance for improving supervisory processes, such as incorporating macroprudential assessments, stress testing and business model analysis, and reinforcing the importance of sound corporate governance at banks;
- highlighting the issues of liquidity shortfalls, excessive concentrations, misaligned compensation and inadequate risk management; and;
- expanding guidelines for information-sharing and cooperation among relevant authorities.
The target audience of these guidelines is the supervisory community, including the international financial institutions (IFIs) that advise supervisors. Closing date for comments is19 September 2014.
13 June 2014 - The Basel Committee on Banking Supervision published a report assessing Canada's implementation of the Basel capital framework. Overall, Canada's implementation was found to be "compliant" with the standards prescribed under the Basel framework. Thirteen of the 14 components assessed were graded as "compliant", while one component - the definition of capital - was assessed as being "largely compliant" with the Basel standards. This outcome recognises the April 2014 amendments to the Canadian capital rules made by the Office of the Superintendent of Financial Institutions (OSFI) during the assessment to further align its capital rules with the Basel framework.
The assessment team also notes that some aspects of Canada's capital rules are more rigorous than required under the Basel framework. OSFI has brought forward the 2019 Basel capital ratio requirements to 2013 in the target capital ratios applied to all banks.
16 April 2014 -The BCBS issued frequently asked questions (FAQs) on Basel III's liquidity coverage ratio (LCR). To promote consistent global implementation of those requirements, the Committee has agreed to periodically review frequently asked questions and publish answers along with any technical elaboration of the rules text and interpretative guidance that may be necessary. The Committee has received a number of interpretation questions related to the January 2013 publication of the LCR standard. These FAQs correspond to the text set out in that standard.
10 April 2014 - the Basel Committee published its revised policy framework for the capital treatment of bank exposures to central counterparties (CCPs). Revisions to the framework were made to reflect decisions reached by the Committee after evaluating the results of the joint quantitative impact study (JQIS)1 and the feedback received from respondents to a related consultative document published in June 2013.
The final policy framework for bank exposures to CCPs retains many of the features from the interim framework, including the general terms, scope of application, treatment of trade exposures to QCCPs, and the capital requirements for bank exposures to non-qualifying CCPs. Notable revisions to the framework include:
- New approach for determining the capital requirements for bank exposures to qualifying CCPs (QCCPs);
- An explicit cap on the capital charges applied to bank exposures to QCCPs (ie those charges will not exceed the charges that would otherwise be applicable if the CCP were a non-qualifying CCP)
- Specification of the treatment for multi-level client structures, and
- Inclusion of text relating to frequently asked questions posed to the Basel Committee in the course of its work on the revised policy framework.
Revisions to the framework for determining capital requirements for bank exposures to central counterparties are being introduced via a new section (Section XI) of Annex 4 of the International Convergence of Capital Measurement and Capital Standards: A Revised Framework - Comprehensive Version, June 2006. Section IX of that annex, which includes the interim capital requirements for bank exposures to CCPs, will be deleted in its entirety. The final standard will apply as of 1 January 2017. Until that time, the interim capital requirements remain in effect.
7 April 2014 - the Basel Committee published its Progress report on implementation of the Basel regulatory framework. It focuses on the status of domestic rule-making processes to ensure that the Committee's capital standards are transformed into national law or regulation according to the internationally agreed timeframes.
6 March 2014 - the Basel Committee published the results of its Basel III monitoring exercise as of 30 June 2013. The study is based on reporting processes set up by the Committee to periodically review the implications of the Basel III standards for financial markets. A total of 227 banks participated in the current study, comprising 102 Group 1 banks (i.e. those that have Tier 1 capital in excess of EUR 3 billion and are internationally active) and 125 Group 2 banks (i.e. representative of all other banks).
Data as of 30 June 2013 show that shortfalls in the risk-based capital of large internationally active banks generally continue to shrink. At the Common Equity Tier 1 (CET1) target level of 7.0% (plus the surcharges on G-SIBs as applicable), the aggregate shortfall for Group 1 banks is €57.5 billion, compared to €115.0 billion on 31 December 2012. However, the aggregate shortfall of CET1 capital with respect to the 4.5% minimum has increased to €3.3 billion, which is €1.1 billion higher than previously. As a point of reference, the sum of after-tax profits prior to distributions across the same sample of Group 1 banks for the year ending 30 June 2013 was €456 billion. The average CET1 capital ratios under the Basel III framework across the same sample of banks are 9.5% for Group 1 banks and 9.1% for Group 2 banks. This compares with the fully phased-in CET1 minimum requirement of 4.5% and a CET1 target level of 7.0%.
4 February 2014 - the Basel Committee published updated documents for the collection of December 2013 data. This includes:
- Basel III monitoring workbook (version 2.7.1)
- Instructions for Basel III monitoring
- Frequently asked questions on Basel III monitoring
12 January 2014 - the Basel Committee issued the full text of Basel III's leverage ratio framework and disclosure requirements following endorsement on 12 January 2014 by its governing body, the Group of Central Bank Governors and Heads of Supervision (GHOS). The document sets out the Basel III leverage ratio framework, along with the public disclosure requirements applicable as from 1 January 2015. These requirements supersede those in Section V of Basel III: A global regulatory framework for more resilient banks and banking systems.
The final calibration, and any further adjustments to the definition, will be completed by 2017, with a view to migrating to a Pillar 1 (minimum capital requirement) treatment on 1 January 2018.
The Basel Committee also issued proposed revisions to the Basel framework's Net Stable Funding Ratio (NSFR) in the form of a consultative document. The revisions to the NSFR developed and agreed by the Basel Committee in December 2010 include reducing cliff effects within the measurement of funding stability, improving the alignment of the NSFR with the Liquidity Coverage Ratio (LCR), and altering the calibration of the NSFR to focus greater attention on short term, potential volatile funding sources. Closing date for responses is 11 April 2014. The Committee intends that the NSFR, including any revisions, will become a minimum standard by 1 January 2018 in line with other measures.
12 January 2014 - Following agreement on the final form of the Basel III LCR last year, the Basel Committee has now completed the required additional work on liquidity disclosure, the use of market-based indicators of liquidity within the regulatory framework, and the interaction between the LCR and the provision of central bank facilities. The package of material covers:
- final requirements for banks' LCR-related disclosures;
- Guidance for Supervisors on Market-Based Indicators of Liquidity; and
- The Liquidity Coverage Ratio and restricted-use committed liquidity facilities;
19 December - The Basel Committee on Banking Supervision has today issued a second consultative paper on revisions to the Basel securitisation framework. The paper sets out detailed proposals, including draft standards text, for a comprehensive revision of the treatment of securitisation within the risk-based capital framework. This follows on from the first consultation issued a year ago and revises in particular the hierarchy of approaches, and the calibration of capital requirement.
17 December - The Basel Committee on Banking Supervision has published its second report on the regulatory consistency of risk-weighted assets (RWAs) for market risk in the trading book. This second Phase study is a part of its wider Regulatory Consistency Assessment Programme (RCAP), which is intended to ensure consistent implementation of the Basel III framework.
The report contains the results of Phase 2 of the analysis of banks’ trading book risk weighted assets (RWAs). The results of Phase 1 were published in January 2013.
The Phase 2 analysis confirms that differences in modelling choices are the most significant drivers of the amount of variation in market risk RWAs (mRWA) across banks. Thus, this second analysis supports the types of policy recommendations that were identified in Phase 1 to reduce the level of variability in mRWA: (i) improving public disclosure and the collection of regulatory data to aid the understanding of mRWAs; (ii) narrowing the range of modelling choices for banks; and (iii) further harmonising of supervisory practices with regard to model approvals.
13 December - The Basel Committee on Banking Supervision published a final standard revising the prudential treatment of banks' investments in the equity of funds within the Basel risk-based capital framework.
The revised framework includes three approaches for setting capital requirements for banks' equity investments in funds. This hierarchy of approaches provides varying degrees of risk sensitivity and has been adopted to incentivise due diligence by banks and transparent reporting by the funds in which they invest.
The Committee's objective in revising the current treatment of banks' equity investments in funds was to develop an appropriately risk-sensitive and consistently applied risk-based capital regime. The revised standard improves upon the existing regime by:
- incorporating a fund's leverage when determining the capital requirements for banks' investments;
- clarifying the application of the Basel framework's capital adequacy standards for credit risk; and
- more appropriately reflecting the risk of a fund's underlying investments, including a higher capital requirement for situations in which a fund's holdings are not sufficiently transparent.
The revised policy framework is scheduled to take effect from 1 January 2017 and will apply to banks' equity investments in all funds (eg hedge funds, managed funds and investment funds) that are not held for trading purposes.
31 October 2013: The Basel Committee on Banking Supervision issued a second consultative paper on the fundamental review of capital requirements for the trading book, comprising a detailed set of proposals for a comprehensive revision of the market risk framework.
The Committee has focused on the following key areas as part of its review:
- The trading book/banking book boundary
- Treatment of credit
- Approach to risk measurement
- A comprehensive incorporation of the risk of market illiquidity
- Treatment of hedging and diversification
- Relationship between internal models-based and standardised approaches
- Revised models-based approach, and
- Revised standardised approach
Responses are due by 31 January 2014.
15 October - The Basel Committee on Banking Supervision (BCBS) published an updated methodology for its jurisdiction-specific Regulatory Consistency Assessment Programme (RCAP). The document presents an overall framework for assessing how consistently different jurisdictions are implementing the Basel standards and it provides guidance on the approaches and methodologies used under the RCAP.
9 October - The BCBS published an updated Progress report on implementation of the Basel regulatory framework providing a high-level view of Basel Committee members' progress in adopting Basel II, Basel 2.5 and Basel III, as of end September 2013.
24 September - The Basel Committee on Banking Supervision (BCBS) published the latest Basel III Monitoring Report which sets out the results of the Basel Committee's Basel III monitoring exercise. A total of 223 banks participated in the current study, comprising 101 large internationally active banks ("Group 1 banks", defined as internationally active banks that have Tier 1 capital of more than €3 billion) and 122 Group 2 banks (ie representative of all other banks).
2 August 2013 - the PRA published a consultation paper on changes to its rules required to implement the EU’s Capital Requirements Directive (CRD IV). The paper also sets out proposed supervisory statements, giving more information on the PRA’s approach to certain CRD IV provisions. Much of the framework contained in the CRR will apply directly which means A number of instruments under the heading "PRA Rulebook - CRR Firms" will make the proposed changes. The instruments will have the effect of disapplying almost all of GENPRU and BIPRU to CRD firms regulated by PRA. The PRA plans to grandfather over certain waivers currently in force under BIPRU and GENPRU rules which will no longer apply. Responses to the consultation are due by 2 October 2013.
30 July 2013 - the PRA updated its statements on bank and capital leverage ratios to include Barclays. The PRA has agreed to Barclays' capital plan aimed at meeting a leverage ratio of 3%, as set by PRA, by June 2014.
19 July 2013 - the Basel Committee on Banking Supervision (BCBS) published a consultation on Liquidity coverage ratio disclosure standards. The disclosure requirements set out in this document are to be applied to all internationally active banks on a consolidated basis. National supervisors may apply these disclosure requirements to other banks and to any subset of entities of internationally active banks to ensure greater consistency and a level playing field between domestic and cross-border banks.
The disclosure framework is set out in three sections:
- Section 1: sets out requirements on the scope of application, implementation date, and the frequency and location of reporting.
- Section 2: the disclosure requirements for the LCR.
- Section 3: provides additional guidance on other information that banks may choose to disclose in order to facilitate understanding and awareness of their internal liquidity risk measurement and management.
The Annexes set out an explanation of the LCR common disclosure template and its completion responses are due by 14 October 2013.
National authorities will give effect to the liquidity disclosure requirements set out in this standard by no later than 1 January 2015. Banks will be required to comply with these disclosure requirements from the date of publication of their first set of financial statements relating to balance sheet data on or after 1 January 2015.
19 July 2013 - the Financial Stability Institute published the results of its 2013 survey by disclosing the information received from 74 non-BCBS/non-EU jurisdictions. Survey results are presented in three parts:
- Section One sets out responses in relation to Basel II implementation, which includes the Pillar 2 and Pillar 3 requirements released by the BCBS in 2006;
- Section Two presents information relating to implementation of Basel 2.5; and
- Section Three details responses in regard to Basel III
17 July 2013 - the Basel Committee on Banking Supervision (BCBS) has launched a joint QIS on non-internal model method for measuring counterparty credit risk and its proposed revisions to the capital requirements for bank exposures to central counterparties. The Committee will also give due consideration to an assessment being performed by the OTC Derivatives Assessment Team regarding the collective impact of a group of regulatory reforms affecting OTC derivatives that have been developed - or that are under development - by global standard setting bodies. The assessment will evaluate whether these regulatory reforms create appropriate incentives for market participants to centrally clear OTC derivatives.
The Basel Committee on Banking Supervision updated its assessment methodology for global systemically important banks. The framework text sets out the Basel Committee's methodology for assessing and identifying global systemically important banks (G-SIBs). It also describes the additional loss absorbency requirements that will apply to G-SIBs, the phase-in arrangements for these requirements and the disclosures that banks above a certain size are required to make to enable the framework to operate on the basis of publicly available information.
The Basel Committee will finalise and publish, by November 2013, certain elements of the regime one year in advance of timeline set out in the November 2011 publication. These elements will enable banks to calculate their scores and higher loss absorbency requirements using end-2012 data, prior to the requirements coming into effect based on end-2013 data. The publication today does not change the date from which the higher loss absorbency requirements start to take effect, which remains 1 January 2016.
The US bank Regulators recently promulgated the final Basel III capital rules to establish a new comprehensive regulatory capital framework for US banking organisations. The Final Rule implements various capital-related provisions of the Dodd-Frank Act.
28 June 2013 - The Basel Committee on Banking Supervision (BCBS) published two consultative papers on the treatment of derivatives-related transactions under the capital adequacy framework.
The non-internal model method for capitalising counterparty credit risk exposures outlines a proposal to improve the methodology for assessing the counterparty credit risk associated with derivative transactions. The proposal would, when finalised, replace the capital framework's existing methods - the Current Exposure Method (CEM) and the Standardised Method. It improves on the risk sensitivity of the CEM by differentiating between margined and unmargined trades. The proposed non-internal model method updates supervisory factors to reflect the level of volatilities observed over the recent stress period and provides a more meaningful recognition of netting benefits. At the same time, the proposed method is suitable for a wide variety of derivatives transactions, reduces the scope for discretion by banks and avoids undue complexity.
Capital treatment of bank exposures to central counterparties sets out proposals for calculating regulatory capital for a bank's exposures to central counterparties (CCPs). This proposal has been developed in close cooperation with the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO). It is designed to replace an interim treatment for bank exposures to CCPs issued by the Basel Committee in July 2012.
Responses to both papers are due by 27 September 2013.
- BCBS: Consultative Document - The non-internal model method for capitalising counterparty credit risk exposures
- BCBS: Consultative Document - Capital treatment of bank exposures to central counterparties
26 June 2013 - The Basel Committee on Banking Supervision (BCBS) published its revised leverage ratio framework and disclosure requirements for consultation. revisions to the framework relate primarily to the denominator of the leverage ratio, the Exposure Measure. The major changes to the Exposure Measure include:
- specification of a broad scope of consolidation for the inclusion of exposures;
- clarification of the general treatment of derivatives and related collateral;
- enhanced treatment of written credit derivatives; and
- enhanced treatment of Securities Financing Transactions (SFTs) (eg repos).
Responses are due by 20 September 2013.
- BCBS: Consultative Document - Revised Basel III leverage ratio framework and disclosure requirements
12 April - the Basel Committee of Banking Supervision (BCBS) has published a new report on the progress towards a full, timely and consistent implementation of Basel III. The report is broader than previous progress reports to the G20 as it covers developments in other Basel III regulatory standards, and banks' progress in bolstering their capital bases.
- Report to G20 Finance Ministers and Central Bank Governors on monitoring implementation of Basel III regulatory reform
11 April - the BCBS has published monitoring tools for intraday liquidity management. The new reporting framework consists of seven quantitative tools to enable banking supervisors to monitor banks’ intraday liquidity risk and their ability to meet payment and settlement obligations on a timely basis. The reporting of the monitoring tools will commence on a monthly basis from 1 January 2015 to coincide with the implementation of the LCR reporting requirements. The framework includes:
- the detailed design of the monitoring tools for a bank's intraday liquidity risk;
- stress scenarios;
- key application issues; and
- the reporting regime.
The tools are for monitoring purposes only and only internationally active banks will be required to apply them. National supervisors will determine the extent to which the tools apply to non-internationally active banks within their jurisdictions.
The BCBS has published a document detailing the phase-in arrangements of the Basel III reforms.
a refreshed statement regarding the Capital Requirements Directive (CRD IV). The Regulator has said it is continuing to prepare for the implementation and expects to be able to begin collecting data under Common Reporting for the period beginning 1 January 2014, should the legislation have entered into force by this date. 15 February 2013 - the BCBS published finalised supervisory guidance for managing risk associated with the settlement of foreign exchange (FX) transactions. The guidance is organised into seven "guidelines" that address governance, principal risk, replacement cost risk, liquidity risk, operational risk, legal risk, and capital for FX transactions and relates to FX transactions that consist of two settlement payment legs, including FX spot transactions, FX forwards, FX swaps, deliverable FX options and currency swaps involving exchange of principal. The BCBS will begin monitoring progress made on implementation from 2015.
- Supervisory guidance for managing risks associated with the settlement of foreign exchange transactions
- revisions to the definition of high quality liquid assets (HQLA) and net cash outflows;
- a timetable for phase-in of the standard;
- a reaffirmation of the usability of the stock of liquid assets in periods of stress, including during the transition period;
- and an agreement for the Basel Committee to conduct further work on the interaction between the LCR and the provision of central bank facilities.
The LCR will be introduced as planned on 1 January 2015, but the minimum requirement will begin at 60%, rising in equal annual steps of 10 percentage points to reach 100% on 1 January 2019. This graduated approach is designed to ensure that the LCR can be introduced without disruption to the orderly strengthening of banking systems or the ongoing financing of economic activity.
- BIS: Press release
- Annex 1 - Summary description of the LCR
- Annex 2 - Complete set of agreed changes to the Liquidity Coverage Ratio
- Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools
28 December 2012 - the Basel Committee on Banking Supervision has updated the FAQs on Basel III's counterparty credit risk rules and the interim framework for bank exposures to central counterparties (CCPs). the publication sets out the fourth set of FAQs relating to Basel III counterparty credit risk requirements, including the default counterparty credit risk charge, the credit valuation adjustment capital charge and asset value correlations. It also includes FAQs relating to the interim framework for bank exposures to CCPs. FAQs added since the publication of the November version of this document are shaded yellow.
18 December 2012 - the Basel Committee on Banking Supervision has published a consultative paper on Revisions to the Basel Securitisation Framework. The Committee's objectives are to make capital requirements more prudent and risk-sensitive; to mitigate mechanistic reliance on external credit ratings; and to reduce current cliff effects in capital requirements. The key elements of the proposed revised framework include:
- Two possible hierarchies that would be significantly different from those employed in the existing securitisation framework.
- Proposed enhancements to the current ratings-based approaches and the supervisory formula approach that are part of the Basel II securitisation framework.
- The introduction of new approaches, such as a simplified supervisory formula approach and different applications of the concentration ratio-based approach that was included in the Basel 2.5 enhancements.
Comments on the proposals are due by 15 March 2013. In the coming months, the Committee will conduct a quantitative impact study (QIS) on the proposals.
13 and 14 December 2012 - the Basel Committee discussed progress on the implementation of the Basel III reforms. Although several jurisdictions have published their final set of regulations, a number, including the European Union and the USA have missed the 1 January 2013 target, The Basel Committee welcomes the fact that national supervisors have already instructed internationally active banks to strengthen their capital base.
21 November 2012 - the Basel Committee on Banking Supervision has updated the FAQs on counterparty risk and published a third set of questions. FAQs that have been added since the publication of the previous version of this document are shaded yellow.
9 November 2012 - the US federal banking agencies have issued a joint press release saying that American banks are not yet ready to start the process of complying with Basel III. The release stated that the agencies do not expect that any of the proposed rules would become effective on January 1, 2013. Although they have stated their intention to complete the process "as expeditiously as possible" an indication of timing has not been given.
6 November 2012 - Wayne Byres, Secretary General of the Basel Committee on Banking Supervision has given a speech entitled "Basel III: Necessary, but not sufficient" in which he sets out the reasons why Basel III is necessary and its key elements, then further outlines three reasons why it needs to be complemented by other measures to deliver the outcomes necessary.
31 October 2012 - the FSB has reported to G20 on progress of the key financial regulatory reforms. Although generally pleased at the progress made, it notes that although the transitional phase of Basel III commences on 1 January 2013, to date only 8 of the 27 member jurisdictions of the Basel Committee have issued the final set of Basel III related regulations. It is therefore very likely that only 6 of the 28 G-SIBs identified by the FSB will be subject to Basel III regulations from the globally agreed start date.
5 October - The Basel Committee on Banking Supervision (BCBS) published its its third Progress report on Basel III implementation. It is the Committee's last report ahead of the globally agreed start date of 1 January 2013 for implementing Basel III although the Committee will continue to provide updates through next year and beyond.
The Basel III implementation review comprises the following three levels:
- Level 1: ensuring the timely adoption of Basel III
- Level 2: regulatory consistency with Basel III
- Level 3: consistency of outcomes (initially focusing on risk-weighted assets)
This report provides the adoption status of Basel II, Basel 2.5 and Basel III for each Basel Committee member jurisdiction as of end September 2012.
3 September - The BCBS published an update to its FAQs on Basel III monitoring. The document provides answers to technical and interpretive questions raised by supervisors and banks during the Committee’s Basel III monitoring. It intends to facilitate the completion of the monitoring questionnaire and is not to be construed as an official interpretation of other documents published by the Committee.
June - The Basel Committee on Banking Supervision has published its final rules on the Pillar 3 disclosure requirements on the composition of banks' capital. The rules contain a common template that internationally-active banks across Basel member jurisdictions will be required to use to publish their capital positions. The dislosure template must be used from 1 January 2018.
12 April - The Basel Committee on Banking Supervision has published the aggregate results of the latest Basel III monitoring exercise, based on data as of 30 June 2011.
4 April - European finance ministers have agreed to an “exceptional” meeting on 2 May in order to discuss bank capital rules and come to some agreement according to Reuters. Britain is demanding flexibility to impose higher standards of capital, whilst countries such as Germany and France want to maintain a level playing field in the EU.
3 April - The Basel Committee on Banking Supervision has published its second progress report on Basel III implementation which tracks the implementation of Basel II, Basel 2.5 and Basel III by Committee member countries.
Following a number of interpretation questions relating to the Basel III regulatory framework, the Basel Committee on Banking Supervision has published a first set of FAQs on the counterparty credit risk rules, including the default counterparty credit risk charge, the credit valuation adjustment (CVA) capital charge and asset value correlations.