The Basel Committee on Banking Supervision has today issued the Twelfth progress report on adoption of the Basel regulatory framework. This included a status summary for Australian Banks and shows that there are substantial steps to be taken to complete the current implementation, yet alone responding to the APRA-led proposals for further capital reform, which we expect to be the result of a discussion paper expected later in the year.
The complexity of the Basel capital frameworks continues to grow.
This report sets out the adoption status of Basel III standards for each BCBS member jurisdiction as of end-March 2017. It updates the Committee’s previous progress reports which have been published on a semiannual basis since October 2011 under the Committee’s Regulatory Consistency Assessment Programme (RCAP).
The report shows that:
- all 27 member jurisdictions have final risk-based capital rules, LCR regulations and capital conservation buffers in force;
- 26 member jurisdictions have issued final rules for the countercyclical capital buffers;
- 25 have issued final or draft rules for domestic systemically important banks (D-SIBs) frameworks and, with regards to the global systemically important banks (G-SIBs) framework, all members that are home jurisdictions to G-SIBs have final rules in force;
- 20 have issued final or draft rules for margin requirements for non-centrally cleared derivatives.
Further, while some members have reported challenges in implementing the following standards for which the implementation dates have now passed, the report shows that:
- 21 member jurisdictions have issued final or draft rules of the revised Pillar 3 framework;
- 19 have issued final or draft rules of the SA-CCR and capital requirements for equity investments in funds;
- 17 have issued final or draft rules of capital requirements for CCP exposures.
Member jurisdictions are now turning to the implementation of other Basel III standards, including those on TLAC holdings, the market risk framework, the leverage ratio and the net stable funding ratio.
The Basel III framework builds on and enhances the regulatory framework set out under Basel II and Basel 2.5. The attached table is designed to monitor the adoption progress of all Basel III standards, which will come into effect by 2019. The monitoring table no longer includes the reporting columns for Basel II and 2.5, nor those Basel III standards that have been implemented by all BCBS members (definition of capital, capital conservation buffer and liquidity coverage ratio).
- The following aspects of the risk-based capital standards are still being implemented:
o Countercyclical buffer: The countercyclical buffer is phased in parallel to the capital conservation buffer between 1 January 2016 and year-end 2018, becoming fully effective on 1 January 2019.
o TLAC holdings: The TLAC holdings standard was issued by the Committee in October 2016. It applies to all banks and describes the prudential treatment for holdings of instruments that comprise TLAC for the issuing G-SIB. The standard will take effect from 1 January 2019.
o Minimum capital requirements for market risk: In January, the Committee issued the revised minimum capital requirements for market risk, which will come into effect on 1 January 2019.
o Capital requirements for equity investment in funds: In December 2013, the Committee issued the final standard for the treatment of banks’ investments in the equity of funds that are held in the banking book, which took effect from 1 January 2017.
o SA-CCR: In March 2014, the Committee issued the final standard on SA-CCR, which took effect on 1 January 2017. It replaced both the Current Exposure Method (CEM) and the Standardised Method (SM) in the capital adequacy framework, while the IMM (Internal Model Method) shortcut method is eliminated from the framework.
o Securitisation framework: The Committee issued revisions to the securitisation framework in December 2014 and July 2016 to strengthen the capital standards for securitisation exposures held in the banking book, which will come into effect in January 2018.
o Margin requirements for non-centrally cleared derivatives: In September 2013, the Committee issued the final framework for margin requirements for non-centrally cleared derivatives. Subsequently, in March 2015, the Committee published a revised version. Relative to the 2013 framework, the revised version changes the beginning of the phase-in period for collecting and posting initial margin on non-centrally cleared trades from 1 December 2015 to 1 September 2016. The full phase-in schedule has been adjusted to reflect this nine-month change in implementation. The revisions also institute a six-month phase-in of the requirement to exchange variation margin, beginning 1 September 2016.
o Capital requirements for bank exposures to central counterparties: In April 2014, the Committee issued the final standard for the capital treatment of bank exposures to central counterparties. These came into effect on 1 January 2017.- Basel III leverage ratio: In January 2014, the Basel Committee issued the Basel III leverage ratio framework and disclosure requirements. Implementation of the leverage ratio requirements began with bank-level reporting to national supervisors until 1 January 2015, while public disclosure started on 1 January 2015. The Committee will carefully monitor the impact of these disclosure requirements. Any final adjustments to the definition and calibration of the leverage ratio will be made by 2017, with a view to migrating to a Pillar 1 (minimum capital requirements) treatment on 1 January 2018 based on appropriate review and calibration.
- Monitoring tools for intraday liquidity management: This standard was developed in consultation with the Committee on Payment and Settlement Systems to enable banking supervisors to better monitor a bank’s management of intraday liquidity risk and its ability to meet payment and settlement obligations on a timely basis. The reporting of the monitoring tools commenced on a monthly basis from 1 January 2015 to coincide with the implementation of the LCR reporting requirements.
- Basel III net stable funding ratio (NSFR): In October 2014, the Basel Committee issued the final standard for the NSFR. In line with the timeline specified in the 2010 publication of the liquidity risk framework, the NSFR will become a minimum standard by 1 January 2018.
- G-SIB framework: In July 2013, the Committee published an updated framework for the assessment methodology and higher loss absorbency requirements for G-SIBs. The requirements came into effect on 1 January 2016 and become fully effective on 1 January 2019. National jurisdictions agreed to implement the official regulations/legislation that establish the reporting and disclosure requirements by 1 January 2014.
- D-SIB framework: In October 2012, the Committee issued a set of principles on the assessment methodology and the higher loss absorbency requirement for domestic systemically important banks (D-SIBs). Given that the D-SIB framework complements the G-SIB framework, the Committee believes it would be appropriate if banks identified as D-SIBs by their national authorities were required to comply with the principles in line with the phase-in arrangements for the G-SIB framework, ie from January 2016.
- Pillar 3 disclosure requirements: In January 2015, the Basel Committee issued the final standard for revised Pillar 3 disclosure requirements, which took effect from end-2016 (ie. banks are required to publish their first Pillar 3 report under the revised framework concurrently with their year-end 2016 financial report). The standard supersedes 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.
- Large exposures framework: In April 2014, the Committee issued the final standard that sets out a supervisory framework for measuring and controlling large exposures, which will take effect from 1 January 2019.
- Interest rate risk in the banking book: In April 2016, the Committee issued the final standard for Interest Rate Risk in the Banking Book (IRRBB), which is expected to be implemented by 2018.
