Economics and Banking – Page 439 – Digital Finance Analytics (DFA) Blog

External Forces May Impact Bank Funding – And Households

On the international horizon there are two potential events which may impact Australian bank funding. Today we consider the potential impacts on the banks, and households. First, it is likely the FED will start to lift interest rates later in the year as they adjust towards more normal rates. Second within a couple of weeks the Greek situation will crystalise, with either a negotiated debt settlement or an early exit. Both these (not totally unconnected) issues could play on bank funding because the large banks here are still quite reliant on accessing the international financial markets.

In recent times funding costs have fallen from their very high levels during the GFC. Australian bond spread mirrors the global picture.

The question is what happens if the financial markets react negatively to the news from the USA or Europe? At very least we can expect greater volatility, and the risk premium on funding costs would likely be raised. This would potentially translate to higher funding costs for the banks because they do rely on the global financial markets (we have been a net importer of funds to support the banks for years).

However, the latest data shows that the banks have a greater proportion of funding from deposits compared with pre-GFC, and there has been a corresponding fall in short term debt funding.

So we think the Australian Banks are quite well placed, despite the potential need to raise an additional $20-30bn to meet expected changes to their capital ratios (work in progress but it is certain to rise). They have already shown their willingness to drop deposit rates more than the market, and we think it is likely this would go further.

In addition, they could reduce the discounts on mortgage lending, as currently they are quite high.

They could also throttle back on their lending – especially for housing – to better match deposit growth to lending growth. Finally, they have access to the RBA “emergency” fund if needed – The Committed Liquidity Facility (CLF).

The Reserve Bank is providing a Committed Liquidity Facility (CLF) as part of Australia’s implementation of the Basel III liquidity standards from 1 January 2015. Consistent with the standards, certain authorised deposit-taking institutions (ADIs) are required by APRA to maintain a liquidity coverage ratio (LCR) at or above 100 per cent. These ADIs may seek approval from APRA to meet part of their Australian dollar liquidity requirements through a CLF with the Reserve Bank. In consideration of the Reserve Bank’s CLF commitment to an ADI, the ADI must pay a monthly CLF Fee in advance to the Reserve Bank.

Industry insiders estimate the capacity of the facility could be as high as $300 billion, a substantial amount. In effect the banks are backed by a Government guarantee.

So, we think that the wash through of these international issues will not create major financial stability problems locally, but there may well be higher costs to savers and borrowers, and potentially Australian tax payers, if the RBA is called on to assist with liquidity, or worst case the deposit insurance scheme is called upon if a bank were to get into difficulty. Currently deposits up to $250,000 in ADI’s supervised by APRA are covered.

Two other points to highlight. First, household savings ratio are on their way down, from their highs post GFC. We would expect households to hunker down and save more if there was an external shock, thus bolstering bank deposits (and a likely flight to quality, as we saw in the GFC). We do not think a run on an Australian bank is likely.

Second, bank net margins are compressing thanks to the severe competition in mortgage lending. This dynamic may change if there was an external shock, as demand for mortgages eased, providing some relief.

In addition the US Australian dollar exchange rate would probably drop, providing some relief. However, second order impacts, namely slowing economic activity, falls in confidence, and rising unemployment which may follow from a global shock, in turn have the potential to impact the banks much more, because it would translate into risks in the housing sector basket, where they have been placing their eggs in recent times.

Applying an Inflation Targeting Lens to Macroprudential Policy `Institutions’

The Reserve Bank of NZ just released a discussion paper on inflation targetting in the light of the macroprudential role of supervisory organisations.

Inflation targeting has been an influential and durable monetary policy framework. It has been widely adopted, and the attributes of inflation targeting have been widely lauded for their contribution to price stability. Yet in recent years the global financial crisis and the sovereign debt crisis have challenged macroeconomic frameworks, providing substantial impetus to concerns about financial stability. In this paper we examine macroprudential policy frameworks through an inflation targeting lens, to understand whether the positive attributes of inflation targeting can and should inform macroprudential frameworks.

We use the four attributes of inflation targeting – independence, transparency, accountability and the explicit inflation objective – to help frame debate about the institutions used to govern macroprudential policies. Overall, we argue that these attributes are important for effective macroprudential frameworks. There are, however, some points of difference.

First, the merits of independence are not as clear for macroprudential policy. One reason to appoint an independent policymaker is to take advantage of `expertness’. However, this advantage must be balanced against the possibility that the policymaker may pursue tradeoffs at odds with the mandate provided by government and the public at large. The scope for such tradeoffs is exacerbated if outcomes are not directly observable or if outcomes are not self-evidently related to the policies that have been implemented. These problems seem more substantial for macroprudential policy than for monetary policy.

We have also argued that macroprudential policies are interdependent and cannot be pursued entirely `independently’. Monetary and macroprudential policies are unified by their connection to social welfare, and policies should be implemented to optimize their marginal contribution to this overarching notion of welfare. In principle, policies must be coordinated if they are to be set optimally, but whether the interdependencies are material remains uncertain. Of course, macroprudential and monetary policy could be coordinated even if they were housed in separate institutions. There is a strong case for monetary authorities to be independent and/or for other constraints that prevent political authorities from monetizing budget deficits (since political authorities may have little regard to the inflationary consequences of doing so). While political authorities could use macroprudential policies indirectly to stimulate the economy and therefore increase tax revenue, it may be more difficult to use macroprudential policies to deal with such funding issues. Thus, the case for appointing an agent to run macroprudential policy independently of political authorities is arguably somewhat weaker.

The second observation we make is that financial stability objectives and intermediate targets should be made more explicit. Policymaking involves strategic interaction between policymakers and private agents, and is an exercise in influencing the behaviour and expectations of private agents. While announcing objectives can foster coordination in strategic games, we do not see that financial stability objectives, as commonly expressed, provide enough guidance about the macroprudential policies that will be implemented in future.

Our third observation is that macroprudential policymakers need to consciously address their communication of future policy actions. As advocates for transparency, we suggest that the institutions of policymaking should explicitly address when policy decisions will be announced and/or implemented, and greater attention should be paid to the menu of macroprudential policies. Macroprudential policies governed by principled rules-based behaviour would make clear what policies will be pursued and how they will be adjusted through time, but much work needs to be done before operational, state-contingent macroprudential rules can be identified.

Our fourth observation is that applying the accountability mechanisms of inflation targeting to macroprudential policies has been a desirable development, though these mechanisms should be strengthened further. We remain convinced that transparent communication to the general public remains a significant element in ensuring accountability.

Lastly, while the accountability institutions for macroprudential and monetary policies are well developed, oversight and accountability are materially constrained by the quality of current analytical frameworks. Such uncertainty makes it difficult to provide objective assessments of macroprudential policies. Looking forward, we must fully expect that macroprudential policies will evolve as views solidify about the most important distortions and the most important macroprudential mechanisms. Institutional frameworks should be flexible enough to accommodate such changes.

Note: The views expressed in this paper are those of the author(s) and do not necessarily reflect the views of the Reserve Bank of New Zealand

Monetary Policy Transmission

Christopher Kent, Assistant Governor (Economic), gave a speech in Canberra at the Australian National University entitled “Monetary Policy Transmission – What’s Known and What’s Changed“. In the speech he dissects the way in which changes to monetary policy flows on through the economy to households and firms. Its a relevant discussion because the recent monetary easing has not so far translated into the desired outcomes in the current cycle. We think he is correct to assert that segmented analysis of households needs to be incorporated into the thinking, as based on our surveys we see that different household groups, are behaving in very different ways.

In responding to cyclical developments and inflation pressures, monetary policy has a significant influence on aggregate demand and inflation. The transmission of interest rates through the economy can be roughly described as follows. I’ll focus on an easing of monetary policy.

The Reserve Bank lowers the overnight cash rate.

Financial markets update expectations about the future path of cash rates and the structure of deposit and lending rates are quickly altered.

Over time, households and firms respond to lower interest rates by increasing their demand for credit, reducing their saving and increasing their (current) demand for goods, services and assets (such as housing and equities).

Other things equal, rising demand increases the prices of non-tradable goods and services. The price-setting behaviour of firms depends on demand conditions and the cost of inputs, including of labour. Higher aggregate demand leads to increased labour demand and a rise in wages.

The transmission mechanism depends crucially on how monetary policy affects households’ and firms’ expectations. Expectations about the future path of the cash rate will affect financial market prices and returns, asset prices and the expected prices of goods, services and factors of production (including labour). Expectations of more persistent changes in the cash rate will have larger effects.

The extent to which lower interest rates lead to extra demand will depend on how households and businesses alter their behaviour regarding borrowing and investing, as well as consuming and saving. These responses are often described as occurring via a number of different channels.

He concludes that monetary policy is clearly working to support demand, although it is working against some strong headwinds. These include the significant decline in mining investment, fiscal consolidation at state and federal levels and the exchange rate, which continues to offer less assistance than would normally be expected in achieving balanced growth in the economy. Model estimates that control for these and other forces provide tentative evidence that the monetary policy transmission mechanism, in aggregate, is about as effective as usual. However, it may be too early to pick up a statistically significant change using such models.

As usual, dwelling construction is growing strongly in response to low interest rates, and this is making some contribution to the growth of aggregate demand and employment. It may be that in parts of the country, any further substantial increases in residential construction activity might run up against some supply constraints, putting further upward pressure on housing prices. As the Bank has noted for some time now, large increases of housing prices, if accompanied by strong growth of credit and a relaxation of lending standards, are a potential risk for economic stability. Accordingly, the Bank is working with other regulators to assess and contain such risks that may arise from the housing market.

Consumption growth has picked up since 2013. But it is still a little weaker than suggested by historical experience. This may reflect a number of factors including some variation in the ways that the different channels of monetary policy are affecting households according to their stage in life. Some indebted households appear to be taking advantage of low interest rates to pay down their debts faster than has been the norm, perhaps in response to weaker prospects for income growth. Those relying on interest receipts may feel compelled to constrain their consumption in response to the relatively long period of very low interest rates. Meanwhile, the search for yield is no doubt playing a role in driving the strong growth of investor housing credit. This might provide some indirect support to aggregate demand, but this channel is not without risk.

In short, monetary policy is working. The transmission mechanism may have changed in some respects, and this could help to explain lower-than-expected growth of consumption and debt of late. But it is hard to be too definitive. To know more about this, it would be helpful to better understand the behaviours of different types of households using household-level data. To use a botanical analogy, to know more about a plant, it’s helpful to observe how its different types of cells work.

Perspectives on the Housing Debate

Last week amongst all the noise on housing there were some important segments from the ABC which made some significant contributions to the debate. These are worth viewing.

First Lateline interviewed the Grattan Institute CEO on the social and political impacts of housing policy, and also covered negative gearing.

Second The Business covered foreign investors, restrictions on investment lending and the implications for non-bank lenders who are not caught by the APRA “guidance”.

Third, a segment from Insiders on Sunday, dealing with both the economic arguments and the political backcloth.

Next a segment from Australia Wide which explores the tensions dealing with housing in a major growing city, Brisbane. No-one wants building near their backyard, so how to deal with population growth.

Latest Lending Aggregates All About Property

The ABS released their data for April. The total value of owner occupied housing commitments excluding alterations and additions rose 1.3% in trend terms whilst the value of total personal finance commitments rose 0.5%.

Total commercial finance commitments rose 2.4%. Fixed lending commitments rose 3.4%, while revolving credit commitments fell 0.4%. The trend series for the value of total lease finance commitments rose 1.6% in April 2015.

We continue to see strong investment lending with more than half of residential loans in April going to investors.

The proportion of commercial lending aligned to investment property rose and this explains much of the rise in commercial lending overall. Investment property lending is relatively unproductive, and makes little contribution to economic growth.

UK Bank Ring-Fence; More Flexible, Group Limits Unclear – Fitch

The implementation of bank ring-fencing in the UK continues a trend of dilution and flexibility by granting additional, albeit minor, concessions to the banks and remaining silent on the important subject of intra-group limits, says Fitch Ratings. The Prudential Regulation Authority’s (PRA) concessions in their end-May statement follow earlier watering-down of proposed rules for ring-fenced banks (RFB) by the UK government, which allowed more activities to be included within the ring-fence.

Fitch believes that only six of the largest UK retail banks will be subject to the ring-fencing rules, and of these only HSBC and Barclays are likely to have significant operations outside the ring-fence. Ultimately, the strength of the ring-fence will have rating implications for the entities within UK banking groups.

The PRA’s statement and near-final rules show that it is staying with the overall approach outlined in the October 2014 consultation. However, by clarifying that certain key aspects will be reviewed on a case-by-case basis and reminding the banks that it is possible to request waivers and modifications, the PRA has introduced additional flexibility. Banks may still have some room for manoeuvre because final rules will not be published until 3Q15 and banks will have until 2019 to comply.

Core issues such as the ‘large exposures limit’ on intra-group exposures between an RFB and the rest of its group and intra-group dividends are still open. UK banks argue that they need clarity to plan for future group treasury management and capital allocation. Under EU rules, the PRA could elect to limit large exposures to 10% of a RFB’s capital. We believe this tight limit would strengthen the ring-fencing and protect RFBs from riskier group activities.

Banks requested clarification about what types of subsidiaries can and cannot be owned by an RFB. A prescriptive list of permitted activities will not be published by the PRA, rather banks will have the opportunity to discuss subsidiary business lines with it on a case-specific basis. This could result in a broader range of permitted activities for RFBs, helping to diversify revenues and simplify operational functions, but also widen the net to include higher-risk business lines.

HSBC indicated recently that it intends to widen the scope of activities included in its RFB. The over-riding guideline is that a subsidiary should not expose the RFB to any risk affecting its ability to provide core activities in the UK. The relative size of subsidiaries will also be considered by the PRA under its ‘proportional’ approach, especially if these are undertaking activities largely unrelated to the RFB’s line of business.

RFBs must be able to take decisions independently and guidelines for board membership, risk management and internal audit arrangements aim to achieve this. Banks queried some of the board cross-membership restrictions and the PRA clarified that board membership rules do not apply to RFB sub-groups. This will make it easier for RFBs to fill the boards of their ring-fenced subsidiaries and affiliates.

Under its proportionality approach, the PRA can consider further waivers to governance arrangements, especially if compliance with the rules proves to be overly burdensome. Lloyds Banking Group is seeking a waiver on the requirement for its RFB, which will make up around 90% of the group, to have a different board of directors to that of its group. The PRA also clarified that RFBs are not prevented from relying on group services from other group entities, which is important if RFBs are to contain costs.

In our view, RFBs will still face some governance conflicts. The rules allow for some board members to be group employees, hold director positions in other group companies and independents can have occupied group positions subject to some restrictions. All board members can receive part of their remuneration in the form of listed shares in a group company. The practical implementation of governance rules will be important to ensure that the right balance is struck between achieving synergies between the RFB and the rest of its group and limiting the direct exposure, both financial and otherwise, to improve the resolvability of the group.

Limited Upside, Potential Downside from HSBC’s Pivot – Fitch

HSBC’s plan to redeploy resources to Asia, shrink its investment bank, and cut costs is unlikely to have a positive rating effect while being potentially negative over the long run, says Fitch Ratings. In particular, how HSBC manages its significant planned growth in China and south-east Asia could hurt the ratings if this leads to a higher overall risk profile and concentration.

The plan, announced as part of an Investor Update on 9 June, reinforces an earlier strategic plan from 2011 which was first updated in 2013 and focuses on several key themes. These include a regional focus on Asia and China, and operating a diversified universal banking model with three divisions of equal weight – Retail Banking and Wealth Management, Commercial Banking, and Global Banking and Market. Financial targets remain unchanged, including a return- on- equity target of above 10% based on a CET1 ratio of 12%-13% – both figures were adjusted earlier in the year.

The announced cost and capital reallocations would only provide a positive credit and ratings effect if HSBC outperforms on the execution of its strategy and at the same time boosts capitalisation significantly. In terms of maximising efficiencies, HSBC plans up to 25,000 job cuts – mainly from reducing back-office functions and through the use of digital technologies and automation. The cost savings will be reinvested, with the overall cost base remaining stable at USD32bn.

Positive factors are the plans to reduce a combined USD140bn in risk-weighted assets (RWAs) in the investment banking division through quicker reduction of legacy assets, selling assets that no longer meet their cost of capital, and focusing on transaction banking-type businesses and multi-product and multi-country relationships However, we view this as a natural extension of ongoing efforts to scale back investments that have become overly capital intensive.

HSBC confirmed that it would also exit Turkey and reduce its operations in Brazil to only a small presence, while holding on to its Mexican business. The capital released from the sales in Turkey and Brazil will be used mainly to finance growth in Asia, enhance transaction banking and building key trade hubs for example in places like Germany. HSBC has already retreated from several dozen retail markets since 2011, including India, Russia, Colombia, Thailand and South Korea. The bank is targeting an increase in investments of USD180bn-230bn in RWAs in the Pearl River Delta (PRD) in southern China and ASEAN countries, which will also involve quadrupling the PRD workforce over the medium term.

Extracting more value from its global network and from increasing the share of international client revenues – which it quantified at USD22bn or 40% of revenues in 2014 – would be positive for HSBC, but there are few details as yet as to how this will be measured and accomplished. In this regard, the bank emphasised that maintaining a substantial US presence is most critical for its transaction banking operations which generated revenue of USD16bn in in 2014.

HSBC restructuring shows universal banks are coming back down to earth – The Conversation

From The Conversation. HSBC’s decision to end its operations in Brazil and Turkey, and lay off around 10% of its workforce worldwide shows just how far it has come from the days of touting itself as “the world’s local bank”. Its strategy used to be to offer any financial service everywhere in the world. Whether you were in Shanghai, Sydney, Springfield or Southampton, you could access services such as personal banking, foreign exchange business banking and investment banking.

This model paid off for years. The bank provided impressive returns to investors, progressively extended its footprint, and even seemed to dodge the worst effects of the financial crisis.

HSBC was not alone in doing well by doing everything, anywhere. Its competitors have built similar business models during the last 20 years.

Merger mania wasn’t for customers

In the past, different financial services were provided by different organisations. You went to one company for insurance, one for investment banking, and one for personal banking. There were co-operatives, partnerships, publicly listed companies and privately held companies. Banks in each country looked completely different. This meant there was a verdant landscape of different kinds of financial service organisation.

But during the 1980s, all this changed. Retails banks started to provide a whole range of services they had not before, such as insurance. Then retail and investment banks began to merge. Building societies demutualised. Banks began to expand across the world. The result was that the world’s financial sector was dominated by a handful of gigantic players. There was also a business model mono-culture: a universal bank which provided almost every service to everyone in the world.

Banks claimed to do this because their customers wanted it. There certainly were a number of sophisticated global clients looking for global banking services. But the real reason for adopting this model had nothing to do with customers. By merging retail and investment banks and continually growing the size of the bank’s balance sheet, these global giants were able to effectively use the money deposited in their retail banks to engage in risky – but highly profitable – trading and investment activities.

This model paid off for many years. As big banks grew, they delivered double digit returns to their shareholders. But perhaps more importantly, they created a lucrative stream of bonuses for senior managers. They also pumped out tax income for governments which hosted them. It seemed everyone was winning.

Downsizing

That was until 2007, when the financial crisis struck. When this happened these global giants with massive balance sheets became a liability. It quickly became obvious that they were too big to fail. If a bank went down, they could threaten the global economy.

And we quickly learned too that they were too big to manage. In the long aftermath of the financial crisis, we discovered that CEOs of large banks (including HSBC) had no idea what was going on in parts of their far flung empires. We also found out they were too big to trust. The ongoing stream of revelations around wrongdoing in markets like foreign currencies and LIBOR – the rate at which banks lend each other short-term money – show that bad behaviour appeared endemic in certain parts of these global giants.

Now shareholders are beginning to ask whether these giant universal banks are too big to succeed. With costs of bad behaviour mounting and many lines of business less profitable than before, shareholders are asking whether big banks should be trying to be everything for everyone. It seems that the universal banking model has failed.

The announcement by HSBC that it is cutting 25,000 jobs across the world, 8,000 in the UK, selling operations in Turkey and Brazil and shrinking its investment bank are an important part of moving away from this model. Underneath this is the recognition the bank can’t do everything for anyone. Instead, if banks like HSBC are to be trusted, profitable and sustainable they need to focus on a few markets where they have genuine expertise.

A benefit for all?

A more focused bank may look appealing to investors and regulators. But if we are to believe recent research, a smaller banking sector may actually be good for the wider economy. However, this focus is unlikely to appeal to staff who will lose their jobs. The UK government must be rightly nervous about losing HSBC, which is one of the country’s biggest tax payers and an important employer. Many of the other large banks are engaging in similar processes of shrinking their scope and balance sheets.

But the big question which remains is whether closing a few lines of business and a little restructuring will do enough to bring back diversity to the banking sector. Creating real diversity in this sector probably means not just slightly smaller global banks – it means ensuring there are a wide range of business models. The risk is that we simply end up with a small number of global giants with oversized footprints. Creating new business models to replace the universal banks is one of the biggest challenges of our time.

Author: Andre Spicer Professor of Organisational Behaviour, Cass Business School at City University London

Westpac Restructures

Westpac announced a new, simplified organisational structure for its Australian retail and business banking operations designed to accelerate the Group’s customer focused strategy. Under the new structure, two new divisions are being created:

Consumer Bank – responsible for all consumer banking products and services under the Westpac, St.George, BankSA, Bank of Melbourne and RAMS brands. It will be led by George Frazis.
Commercial and Business Bank – responsible for serving small and medium enterprises, commercial and agri-business customers, as well as asset and equipment finance. Specialist business bankers will continue to operate under their respective brands. The division will be led by David Lindberg.

Each division will be responsible for improving the end-to-end service experience of their respective customer segments and will have dedicated product, marketing and digital capabilities. CEO Brian Hartzer said the simpler structure will clarify accountability and better align resources to customer segments, while maintaining the Group’s unique family of brands.

Consumer Bank

The distinct positions of each of Westpac’s brands-Westpac, St.George, BankSA, Bank of Melbourne and RAMS-will be preserved and supported by a dedicated product and marketing and digital capability. Under the new structure General Managers of each of the brands will report to George Frazis.

George Frazis is currently Group Executive, St.George Banking Group, a position he has held since April 2012. During the past three years, George has invigorated the St.George franchise and delivered strong returns for the Group.

George joined the Westpac Group in March 2009 as Chief Executive, Westpac New Zealand Limited. He is a highly experienced financial services executive, having previously been a group executive of National Australia Bank and a senior executive in Commonwealth Bank of Australia’s Institutional Banking Division. George was previously a partner with the Boston Consulting Group and an officer in the Royal Australian Air Force.

Commercial and Business Bank

The new Commercial and Business Bank division, led by David Lindberg, will bring together specialised business bankers from each of the brands, equipment and asset finance businesses, as well as responsibility for business products, marketing and digital. This new operating division will ensure greater focus on business customers, an important area of growth for the Group.

David Lindberg is currently Chief Product Officer, responsible for the Group’s retail and business product and digital banking offerings across all brands. In this role, David has led the simplification of products and services, and has been responsible for the highly successful roll-out of Westpac Live. Prior to joining Westpac in 2012, David held senior executive positions in the Commonwealth Bank of Australia and ANZ. He commenced his career at First Manhattan Consulting Group, where he worked from 1999 to 2008.

Additional management changes

As a result of the new management structure, Jason Yetton, Group Executive, Westpac Retail & Business Banking is leaving Westpac to pursue other opportunities. Responsibility for all other divisions of the Group remains unchanged. The new structure will take effect immediately. However, given the Group has operated under the previous structure for almost three quarters of the year, it will report its full year to 30 September 2015 financial results under the previous organisational structure.

Basel Committee Consults on Interest Rate Risk in the Banking Book

The Basel Committee on Banking Supervision has 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.

The Committee’s review of the regulatory treatment of interest rate risk in the banking book is motivated by two objectives: First, to help ensure that banks have appropriate capital to cover potential losses from exposures to changes in interest rates. This is particularly important in the light of the current exceptionally low interest rate environment in many jurisdictions. Second, to limit capital arbitrage between the trading book and the banking book, as well as between banking book portfolios that are subject to different accounting treatments.

The proposal published presents two options for the capital treatment of interest rate risk in the banking book:

(i) a Pillar 1 (Minimum Capital Requirements) approach: the adoption of a uniformly applied Pillar 1 measure for calculating minimum capital requirements for this risk would have the benefit of promoting greater consistency, transparency and comparability, thereby promoting market confidence in banks’ capital adequacy and a level playing field internationally; alternatively,

(ii) an enhanced Pillar 2 approach: a Pillar 2 option, which includes quantitative disclosure of interest rate risk in the banking book based upon the proposed Pillar 1 approach, would better accommodate differing market conditions and risk management practices across jurisdictions.

The Committee is seeking comments on the proposed approaches, which share a number of common features. Comments are sought by 11 September 2015.