Basel Committee on Banking Supervision

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Timeline-Basel III Implementation, Prudential Regulators
Interim Final Rule Final Rule Implementation Phase-in
September 10, 2013 April 14, 2014 2015-2019

The Basel Committee on Banking Supervision was established by the Group of Ten (G-10) central bank governors in 1974. Its primary purpose is to provide a forum for regular discussion of key banking supervision issues. The committee, whose functioning is provided by the Bank for International Settlements, meets four times a year, and reports to a joint committee of central bankers of member countries.[1] For more information, see the committee's MarketsWiki page.

Although the committee does not possess any legal authority, the supervisory standards and best practices put forth by the committee encourage "convergence towards common approaches and common standards without attempting detailed harmonization of member countries' supervisory techniques."[2]

Key Initiatives

  • 1988 The original Basel Accord. Member countries agreed to an eight percent capital reserve requirement as a credit risk buffer.
  • 2004-05 Basel II added market risk and operational risk considerations to the capital requirement calculation. Basel II also added a framework for calculating additional risks such as systemic risk, concentration risk, and liquidity risk. In addition, Basel II suggested standards for disclosure and peer review. Capital requirements remained at eight percent, half of which should be "Tier 1" capital, which includes permanent shareholders' equity and disclosed capital reserves. [3] Capital requirements, risk management and supervision, and market discipline are known as "The Three Pillars" of Basel II. For more information, click HERE.
  • In response to the financial crisis of 2008, the Basel Committee established new global standards on systemic risk and governance. These standards, which were issued in December 2010, are referred to as Basel III. Under Basel III, each of the the three Basel II pillars are strengthened, including:
  • In November 2011, the BIS published a frequently asked questions paper on counterparty credit risk under Basel III. This document can be found below.
  • In June 2012, the Basel Committee submitted a Basel III implementation progress report to the G20. This report can be found below.
  • In January 2013, the committee softened key portions of Basel III, including a four-year extension on the Liquidity Coverage Ratio (LCR). Instead of a January 2015 compliance deadline, the LCR will be phased in. Under the new schedule, 60 percent of the LCR obligations will be required by 2015; full compliance will be required by 2019. [4]
  • In September 2013, three U.S. Prudential Regulators, the FDIC, the Federal Reserve and the Office of the Comptroller of the Currency issued an interim final rule on key Basel III capital rules. In April 2014, the interim final rule became final, with no substantive changes. To view the final rule, click HERE.

Basel III Implementation by Prudential Regulators

The proposed guidances outline an integrated regulatory capital framework that addresses shortcomings in regulatory capital requirements that became apparent during the recent financial crisis. The proposed rule would implement in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. [5]

The deadline for public comments was September 7, 2012. The regulators received approximately 1300 comment letters for the three proposed rules. These letters can be accessed HERE.

The Federal Reserve has scheduled an open meeting for July 2, 2013, where it will consider final rules for the implementation of Basel III. For more information, click HERE.

Implementation of Basel III

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Advanced Approaches Risk-based Capital Rule

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Standardized Approach for Risk-weighted Assets

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Additional Documents: International Convergence of Capital Measurement and Capital Standards (Basel II), Basel III Framework, Basel III Summary Table, Basel III Frequently Asked Questions

References

  1. Fact sheet - Basel Committee on Banking Supervision. Bank for International Settlements. Retrieved on September 6, 2011.
  2. History of the Basel Committee and its Membership. Bank for International Settlements. Retrieved on September 6, 2011.
  3. International Convergence of Capital Measurement and Capital Standards. Bank for International Settlements. Retrieved on September 7, 2011.
  4. Banks Win 4-Year Delay as Basel Liquidity Rule Loosened. Bloomberg. Retrieved on January 8, 2013.
  5. Basel III. Federal Reserve. Retrieved on July 10, 2012.

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