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Overview of Basel Committee’s Pillar 3 Disclosure Proposal

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 existing Basel II disclosure standards took up approximately 14 pages.  The new proposed disclosure tables and templates take up over 50 pages.
  • More prescriptive disclosures.  The proposal contains 12 disclosure tables and 35 disclosure templates for a total of 47 disclosure sets.  Of these 47 disclosure sets, 19 must be presented in “fixed format” (i.e., every bank should use the same tables) and the remaining 28 can be presented in “flexible format.”  The proposal also standardizes a number of key definitions used in disclosures.
  • Greater emphasis on narrative and qualitative disclosures:  Particularly in explaining key changes to disclosed numbers between reporting periods.
  • Greater linkages to financial statements:  Designed to enhance user understanding of the relationship between financial statement data and regulatory capital disclosures.
  • Disclosure of standardized (non-internal model based) capital requirements:  The Basel Committee “intends to consider the possibility” of requiring banks that use internal models to calculate capital to also disclosure their standardized (non-internal model based) capital requirements for credit risk to enhance transparency and comparability.
  • Integrated approach to Basel 3 capital and liquidity disclosures:  As part of a later, second stage of review, the Basel Committee intends to “require banks to provide all existing and new [Basel capital, leverage and liquidity] disclosure requirements in a single and coherent package.”
  • Operational risk and interest rate risk in the banking book:  Disclosure requirements for interest rate risk in the banking book and operational risk will also be considered in stage two when the policy reviews in these areas have been completed.
  • EDTF recommendations:  Page 71 of the Basel Committee’s proposal includes a comparison of the Pillar 3 proposal and the Enhanced Disclosure Task Force (EDTF) recommendations.

Summary Table

The following table sets out whether the proposed disclosure requirements are required in a fixed or flexible format and the proposed frequency of publication:

Basel3Pillar3table

Materials: 

Basel Committee, Review of the Pillar 3 disclosure requirements, Consultative Document (June 2014), available at:  http://www.bis.org/publ/bcbs286.pdf.

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