Twitter RSS

Capital and Prudential Standards Blog

magnify
Home Archive for category "Risk-Based Capital Ratio" (Page 2)
formats

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

Comments Off on Key Features of 2014 EU Bank Stress Tests.
formats

Basel Committee Chairman Discusses Next Steps for the Basel Committee

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

Comments Off on Basel Committee Chairman Discusses Next Steps for the Basel Committee.
formats

Basel Committee’s Oversight Body Endorses Revisions to Basel III Leverage and Liquidity Standards

Today, the Basel Committee’s oversight body, the Group of Governors and Heads of Supervision (GHOS), endorsed a number of important proposed and final revisions to the Basel III capital and liquidity standards, including:

  • Revisions to the Basel III leverage ratio, which are intended to reflect agreement on a consistent measure of leverage “to overcome differences in national accounting frameworks” and to maintain the leverage ratio as a “backstop” to risk-based capital requirements;
  • Proposed changes to the Basel III net stable funding ratio (NSFR), for which the Basel Committee has released a consultative document;
  • Final Pillar 3 disclosures standards relating to the Basel III liquidity coverage ratio (LCR);
  • Revisions to the Basel III LCR providing that committed liquidity facilities of a type already recognized for jurisdictions with insufficient high-quality liquid assets (HQLAs) may have a role to play within the LCR framework; and
  • The Basel Committee’s strategic priorities for the next two years, which include ongoing monitoring and assessment of Basel III implementation; further examining the Basel framework’s balance between simplicity, comparability and risk sensitivity; and improving effectiveness of supervision.
 Read More
Comments Off on Basel Committee’s Oversight Body Endorses Revisions to Basel III Leverage and Liquidity Standards.
formats

Federal Reserve Issues Guidance to Large Financial Institutions on Managing Foreign Exchange Settlement Risks for Physically Settled Transactions

Today, the Federal Reserve issued a Supervision and Regulation letter (SR letter) regarding the Basel Committee’s February 2013 guidance for managing risks associated with the settlement of foreign exchange transactions.  The Basel Committee’s guidance sets forth seven guidelines for managing foreign exchange transaction settlement risks.  Our earlier blog post on the Basel Committee’s guidance is available here.  The Federal Reserve stated that large financial institutions subject to the SR letter should apply the Basel Committee’s seven guidelines to their foreign exchange activities. …  Read More

Comments Off on Federal Reserve Issues Guidance to Large Financial Institutions on Managing Foreign Exchange Settlement Risks for Physically Settled Transactions.
formats

Basel Committee Issues Second Proposal on Risk-Based Capital Requirements for Securitization

Today, the Basel Committee issued a second proposal to revise the risk-based capital requirements for securitization exposures.  In developing the proposal, the Basel Committee took into account comments received on its first proposal and the results of a quantitative impact study (QIS).

Compared with the Basel Committee’s first proposal, the major changes in the second proposal relate to the hierarchy of approaches for securitization exposures and the calibration of capital requirements.

Proposed hierarchy of approaches.  The Basel Committee proposes the following hierarchy of approaches for determining the capital requirement for securitization exposures:

  1. Where banks have the capacity and supervisory approval to do so, they may use an internal ratings-based approach to determine the capital requirement based on the internal ratings based approach capital charge for the underlying pool of exposures, including expected losses.
 Read More
Comments Off on Basel Committee Issues Second Proposal on Risk-Based Capital Requirements for Securitization.
formats

Basel Committee Issues Final Capital Standards for Equity Investments in Funds

Today, the Basel Committee finalized its revised risk-based capital framework for a bank’s equity investments in funds, which was proposed in July 2013.  The revised framework includes three approaches for calculating risk-based capital requirements for equity investments in funds (hierarchy of approaches), which are in decreasing order of risk-sensitivity.

Scope of Application:  The revised framework is applicable to banks’ equity investments in all types of funds that are held in their banking book, including off-balance sheet exposures (e.g., unfunded commitments to subscribe to a fund’s future capital calls).  …  Read More

Comments Off on Basel Committee Issues Final Capital Standards for Equity Investments in Funds.