Today, the U.S. banking agencies issued a final rule to implement the Basel III liquidity coverage ratio (LCR). We have prepared a blackline that compares the text of the final rule against the proposed rule that was issued in 2013.
The Basel Committee has published a proposal to significantly revise the Pillar 3 capital disclosure standards for internationally active banks. By way of background, Pillar 3 of the Basel framework aims to promote market discipline through qualitative and quantitative regulatory disclosure requirements.
The main objectives of today’s proposed changes include further enhancing the comparability and consistency of disclosures (both across time and across banks) and providing greater transparency of banks’ internal capital calculation models and methodologies.
Overall themes. The new disclosure requirements embody, among others, the following overall themes:
- Longer and more detailed disclosures.
The Chairman of the Basel Committee, Stefan Ingves, delivered a speech entitled Liquidity risk management – the LCR and beyond. In addition to discussing the Basel III liquidity coverage ratio (LCR) and net stable funding ratio (NSFR), Chairman Ingves reminded banks that “the LCR and NSFR are not meant to be the first line of defence against banks’ liquidity problems.” He observed that “the LCR and NSFR are relatively simple quantitative measures that cannot hope to fully capture the many nuances of liquidity risk that a bank may face” and that “[b]anks must develop a range of quantitative and qualitative controls for themselves to ensure that they are prepared for the volatility in their cash flows that is inherent in the complexity of banks’ business models.” In this context, Chairman Ingves discussed the Basel Committee’s Principles for sound liquidity risk management and supervision and concluded by stating that:
“The first line of defence against the impact of future liquidity shocks on the banking system is stronger risk management by banks themselves.… Read More
Following is a summary of the Basel Committee’s final framework for measuring, reporting and limiting a bank’s exposures to single counterparties and groups of connected counterparties. The large exposures framework, which relies on a number of concepts in the Basel Committee’s risk-based capital framework, is intended to ensure greater international consistency in regulatory and supervisory approaches to large exposures and to act as a backstop to risk-based capital requirements.
Blackline Showing Changes: Davis Polk’s blackline of the Basel Committee’s April 2014 final vs.… Read More
[Update: We have prepared a blackline (available here) of the April 2014 final standards vs. the July 2012 interim standards.] The Basel Committee has finalized its risk-based capital standards for bank exposures to central counterparties (CCPs). The final standards will take effect on January 1, 2017. The interim standards that were published in July 2012 will continue to apply until that time.
Like the interim standards, the final standards distinguish between trade exposures and default fund exposures to CCPs and distinguish between exposures to qualifying CCPs (QCCPs) and non-QCCPs. … Read More
[A PDF version of the comparison chart is available here (mobile and printer friendly)] We have prepared a chart that compares the U.S. banking agencies’ proposed revisions to the U.S. Basel III Supplementary Leverage Ratio (“SLR”) with the Basel Committee’s January 2014 revisions to the Basel III leverage ratio. While the revised SLR proposed by the U.S. banking agencies is similar to the revised Basel III leverage ratio in many respects, there are some important differences between the two ratios.… Read More