The Basel Committee has agreed that supervisors may allow banks to apply a 0% risk weight to claims on the European Stability Mechanism (ESM) and European Financial Stability Facility (EFSF). The ESM and EFSF will be included in the list of entities receiving a 0% risk weight under the Basel capital framework — paragraph 56 of Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework (June 2006). Claims on the ESM and EFSF will also be included as Level 1 High Quality Liquid Assets (HQLA) under the Basel Committee’s liquidity coverage ratio (LCR) framework — paragraph 50 (c) of Basel III: The Liquidity Coverage Ratio and Liquidity Risk Monitoring Tools (Jan.… Read More
Today, the Basel Committee published a report on the regulations that implement the Basel capital framework in Australia.
According to the Basel Committee, Australia’s implementation of the Basel capital framework was found to be closely aligned with the Basel III standards: 12 out of 14 assessed components were found to be “Compliant”. The two components that were graded “Largely Compliant” were the “Definition of Capital” and the “Internal Ratings-Based Approach for credit risk,” where some differences exist vis-à-vis the Basel framework.… Read More
Basel Committee Chairman Stefan Ingves has delivered a speech discussing the Basel III leverage ratio and its role in the Basel framework, noting that while the Basel Committee has recently agreed on a common measure of bank leverage, the issue of calibration (i.e., the percentage level of the leverage ratio) is still open. Significantly, Chairman Ingves stated that “[e]ven though the leverage ratio has been designed as a backstop, it must be a meaningful backstop if it is to serve its intended purpose.” In this respect, Chairman Ingves noted the following in his speech:
- “Only now that we have an agreed [measure of leverage] can the [Basel] Committee begin to turn to the issue of calibration, and the relationship of the leverage ratio to the risk-based framework.
Basel Committee Chairman Stefan Ingves has delivered a speech discussing the Basel Committee’s policy agenda over the next year, noting that “there is still a lot on the Committee’s plate – at last count, a total of around 50 projects.” Among other topics, Chairman Ingves discussed the variation of risk-weighted assets (RWAs) among banks and potential policy responses.
The Basel Committee has published three studies on the variation of RWAs among banks – two for the trading book (our earlier blog post on this topic is available here) and one for the banking book (our earlier blog post on this topic is available here). … Read More
Today, the Basel Committee published a paper that discusses four fundamental components of a sound capital planning process: (1) internal control and governance; (2) capital policy and sufficient risk capture; (3) forward-looking view through stress testing; and (4) management framework for preserving capital.
The Basel Committee stated that its paper does not set forth new capital planning guidance. Rather, it presents sound practices observed at some banks, which the Basel Committee believes can foster overall improvement in banks’ capital planning processes. … Read More
The Basel Committee recently finalized its revisions to the Basel III leverage ratio. Compared to its June 2013 proposal, the Basel Committee has made several important changes to the denominator of the Basel III leverage ratio. Davis Polk’s visual memorandum uses diagrams, comparison tables, examples and formulas to illustrate the Basel Committee’s revisions to the Basel III leverage ratio and potential U.S. implementation issues.