B Basel III l III Response to the Response to the crisis - - PowerPoint PPT Presentation
B Basel III l III Response to the Response to the crisis Governor Stefan Ingves, Chairman of the Basel Committee on Banking Supervision Chairman of the Basel Committee on Banking Supervision So Paulo Overview 1. Lessons of the
Governor Stefan Ingves, Chairman of the Basel Committee on Banking Supervision Chairman of the Basel Committee on Banking Supervision São Paulo
Overview
Financial crises have significant costs Financial crises have significant costs
Japan US UK Korea Mexico Sweden
Source: BIS
Some key drivers of reform Some key drivers of reform
Too low quality d tit T hi h l and quantity
Too high leverage Too big to fail No liquidity framework Interconnectedness P i k t Interconnectedness Poor risk management
with a focus on its most important standards
Basel III Core Principles for Effective Banking Supervision Core Principles for Effective Banking Supervision
Basel III – the regulatory response Basel III – the regulatory response
Objective: reduce the probability and severity of banking crises in the future
Strengthened
Capital requirements for systemically important banks
j
p y y g
Strengthened capital requirements New requirements Cap on bank requirements
liquidity Cap on bank leverage
Basel III more and better capital Basel III - more and better capital
2 %
Basel III Basel II
1.5 %
Countercyclical capital buffer
9.5 % 2.5 %
Capital conservation buffer
7 % 4 % 8 % 4.5 %
Minimum Requirements
2 % 2 % 4 %
Additional Tier 1 Tier 2 Common Equity
2 % 2 %
Additional Tier 1 Tier 2 Common Equity Tier 1 Equity Tier 1 Tier 1 Tier 1
Basel III sets quantitative q requirements on liquidity
Short term liquidity Long term funding
Liquidity Liquidity Coverage Ratio Coverage Ratio Net Stable Funding Net Stable Funding Ratio Ratio q y q y g
High quality liquid assets
g
Available stable funding ≥ 100 % ≥ 100 % Net cash outflows over a 30 day period Required stable funding ≥ 100 % ≥ 100 %
Leverage ratio: backstop to the risk- based capital measure
Leverage Ratio Leverage Ratio g
Tier 1 capital ≥ 3 % Total assets and most off-balance sheet assets ≥ 3 %
Systemically important banks need y y p special regulation
28 global systemically important banks (G-SIBs) identified Indicators of Indicators of Systemic importance Systemic importance
Cross jurisdictional activity
( )
Package for more resilience
Recovery and resolution plans
Higher capital requirements
More intense supervision
Data aggregation
I dditi D ti
Substitutability
In addition – Domestic systemically important banks (D-SIBs)
Swedish banks’ progress towards the p g new regulatory requirements
Source: The Riksbank Note: the indicated positions in the diagram shows the average Basel III ratios for the major Swedish banks. For CET 1 Sweden has currently a higher requirement at 12 % CET 1. the Basel requirement is 9.5% if the contra cyclical buffer and capital conservation buffer are included.
Number of jurisdiction which have implemented or are in the process of implementation of Basel III*
BCBS Others Total
process of implementation of Basel III*
27
BCBS Others Total
27
19 32 51
2012
27 45 72
2013
* Methodology similar to that of the Basel Committee (BCBS) “Level 1” surveys. Information on BCBS and EU members available from BCBS publications. ** A jurisdiction that has implemented at least one subsection of Basel III is deemed to be in the process of implementation. Source: FSI 2013 survey on Basel II and III implementation, http://www.bis.org/fsi/fsiop2013.pdf
Implementation – three levels of p assessments
.
Assessments of Assessments of
European Union
Analysis of bilit f i k Analysis of bilit f i k
Japan United States
Timely adoption of Basel III Timely adoption of Basel III comparability of risk- weighted assets comparability of risk- weighted assets
Singapore Switzerland United States Trading Book China Australia g Banking Book Brazil
Key achievements mid 2013
The regulatory framework: balancing The regulatory framework: balancing Analysis of risk weighted Analysis of risk weighted framework: balancing risk sensitivity, simplicity and bilit framework: balancing risk sensitivity, simplicity and bilit Analysis of risk-weighted assets for credit risk in the banking book Analysis of risk-weighted assets for credit risk in the banking book comparability comparability
What more is on at the Basel Committee
.OTC derivatives Large exposures Trading book review S iti ti Securitisations Review of the standardised approaches pp Interest rate risk in the banking book
More than Basel III More than Basel III…
OTC-derivative OTC derivative market reforms Bail-in capital
Strengthened capital capital requirements
New
Framework for d li
New requirements
liquidity Cap on bank leverage
Accounting topics dealing with failing banks
liquidity
Rules are only part of the game
Strong supervision is of equal importance A few areas of importance importance
The Core Principles are essential in this respect
p
circumstances
p and support for supervisors
Concluding remark
Successful crisis management is all about
restoring and preserving confidence
Long run - Regulatory and supervisory reform is
needed
Consistent implementation of rules is vital! Short run – Go get the lemons, and squeeze
them! them!
Development in the Euro area versus p US
Single S i Single R l ti Common Deposit Supervisory Mechanism Resolution Mechanism Deposit Guarantee Scheme
FSI 2013 survey on Basel II and III i l t ti *
BCBS Oth T t l
implementation*
Responses/ information from
BCBS Others Total
115 27 88 2012 from jurisdictions 27 93 120 2013 Basel II**
Implemented/in the process of implementation
27 27 73 64 91 100 2013 2012 Basel III**
Implemented/in
27
19 32 51 2012
p / the process of implementation
* M h d l i il h f h B l C i (BCBS) “L l 1” I f i BCBS d EU b il bl f BCBS bli i
27 45 72 2013
22
* Methodology similar to that of the Basel Committee (BCBS) “Level 1” surveys. Information on BCBS and EU members available from BCBS publications. ** A jurisdiction that has implemented at least one subsection of Basel III is deemed to be in the process of implementation.
Source: FSI 2013 survey on Basel II and III implementation, http://www.bis.org/fsi/fsiop2013.pdf