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Basel Committee Agrees to 0% Risk Weight for European Stability Mechanism (ESM) and European Financial Stability Facility (EFSF)

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

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Overview of European Commission’s Proposal on Reporting and Transparency of Securities Financing Transactions (SFTs)

Alongside its proposed EU banking sector structural reforms, the European Commission (EC) has issued a proposal regarding the reporting and transparency of securities financing transactions (SFTs).  This blog post provides a high-level overview of certain aspects of the EC’s SFT proposal.

EC’s Stated Rationale for the SFT Proposal:  The EC stated that “[t]o prevent banks from shifting parts of their activity to the less-regulated shadow banking sector, it is important that any structural separation measure [such as the EC’s proposed banking sector structural reforms] is accompanied by measures improving the transparency of shadow banking.”  According to the EC, transparency helps ensure that authorities and market participants have an appropriate understanding of how the markets work and the magnitude and nature of any potential risks. …  Read More

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Key Features of 2014 EU Bank Stress Tests

The European Banking Authority (EBA) has announced key components of the forthcoming 2014 EU stress test that will be conducted on a sample of 124 EU banks covering at least 50% of the national banking sector in each EU Member State.  According to the EBA, the EU stress test aims at ensuring consistency and comparability of the outcomes across all sample banks based on common methodologies, scenarios and disclosures.

Key Features of the 2014 EU Bank Stress Test:  According to the EBA, the 2014 EU stress test will include the following key features:

Capital Thresholds:  A Common Equity Tier 1 (CET1) risk-based capital ratio of 8% will be the capital hurdle rate for the baseline scenario and a CET1 risk-based capital ratio of 5.5% will be the capital hurdle rate for the adverse scenario.  …  Read More

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Definition of High-Quality Liquid Assets: U.S. LCR Proposal vs. European Banking Authority Recommendations

We have prepared a high-level comparison of (1) the definition of high-quality liquid assets in the U.S. liquidity coverage ratio (LCR) proposal and (2) the assets found to be of extremely high liquidity and credit quality (extremely HQLAs) and of high liquidity and credit quality (HQLAs) in the European Banking Authority’s recent report on the uniform definitions of extremely HQLAs and HQLAs.  Pursuant to CRD IV, the European Commission will consider the European Banking Authority’s report for purposes of introducing a detailed and harmonized LCR requirement in the EU.…  Read More

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European Banking Authority Publishes Reports on Liquidity Coverage Ratio

Today, pursuant to CRD IV, the European Banking Authority (EBA) published two reports on the liquidity coverage ratio (LCR).  The first report concerns the appropriate uniform definitions of extremely high quality liquid assets (extremely HQLAs) and high quality liquid assets (HQLAs) and operational requirements for liquid assets.  The second report assesses the impact of an LCR requirement in the EU.  The two reports provide the European Commission with specific recommendations for the purpose of its forthcoming delegated act setting forth a uniform LCR requirement in the EU.…  Read More

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European Banking Authority Publishes Assessment of Basel Pillar 3 Disclosures by Large EU Banks

Today, the European Banking Authority (EBA) published its assessment of the 2012 Basel Pillar 3 disclosures made by 19 EU banks.  The EBA concluded that overall, despite improvements in some specific areas, the banks’ compliance with disclosure requirements remains unchanged compared to last year’s assessment.  The report identifies examples of best practices that EU banks are encouraged to follow to improve the quality, consistency and comparability of their disclosures and their compliance with the regulatory requirements.

U.S. Pillar 3 Requirements:  Beginning in 2015, top-tier U.S.…  Read More

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