Basel Committee on Banking Supervision

BCBS Finalizes Risk Management Guidelines on AML and Terrorist Financing

On January 15, the Basel Committee on Banking Supervision (BCBS) issued risk management guidelines relating to anti-money laundering (AML) and terrorist financing.

The guidelines apply to all banks and are consistent with the international standards on combating money laundering and the financing of terrorism and proliferation issued by the Financial Action Task Force (FATF) in 2012, and supplement their goals and objectives.  Risk Management Guidelines.

Basel Committee on Banking Supervision Endorses Revised Basel III Liquidity Standards for Banks

It was announced on January 6, that the Basel Committee on Banking Supervision’s (BCBS) Group of Governors and Heads of Supervision (GHOS) has endorsed revised Basel III liquidity standards for banks.  This was later welcomed in a statement made by Michael Barnier of the European Commission on January 8.

The revised liquidity standards relate to the formulation of liquidity coverage ratio (LCR), which is an essential part of the reforms being made by Basel III.  The package of amendments, which is summarised in a document headed Annex 1, comprises of four elements as follows:

    • revisions to the definition of high quality liquid assets and net cash outflows;
    • a timetable for phasing in the standard;
    • a reaffirmation of the usability of the stock of liquid assets in periods of stress (including during the transition period); and
    • an agreement that the Basel Committee will conduct further work on the interaction between the LCR and the provision of Central Bank Facilities.

In addition to the revised liquidity standards, the GHOS also reiterated the importance of full and timely implementation of the Basel III standards.  It also endorsed a new charter for the BCBS in order to enhance understanding of its activities and decision-making processes, and identified that a review of the net stable funding ratio would also be a priority over the next few years.

Basel Committee on Banking Supervision FAQs on Basel III Counterparty Credit Risk and Exposures to Central Counterparties

On December 28, 2012, the Basel Committee on Banking Supervision published an updated version of its frequently asked questions on the Basel III rules relating to counterparty credit risk and exposures to central counterparties. The update includes new questions and answers on the rules text of Basel III relating to: 

  • Advanced credit valuation adjustment capital charge;
  • Eligible hedges; and
  • Treatment of incurred credit valuation adjustment.

In addition, a new section of questions and answers has been added to assist with the interpretation of the rules text on the capitalisation framework for bank exposures to CCPs.   

Basel Committee Final Rules on Capital Composition Disclosure

On June 26, the Basel Committee on Banking Supervision issued its final rules regarding information banks must disclose about the composition of their capital. National authorities are required to give effect to the new disclosure requirements no later than June 30, 2013. Release. Rules.

Fed Final Market Risk Capital Rule

On June 7, pursuant to Section 939A of the Dodd-Frank Act, the Fed released a final rule revising its market risk capital requirements to incorporate certain changes the Basel Committee on Banking Supervision made to its international capital standards for market risk between 2005 and 2010. The final rule is to be issued jointly with the FDIC and OCC, which are expected to adopt the rule next week. The final rule will be effective on January 1, 2013. Fed Memo. Fed Final Rule.

Basel Committee Final Rules on G-SIBs

On November 4, the Basel Committee on Banking Supervision issued rules for global systemically important banks (G-SIBs), outlining: (i) the committee’s framework to identify G-SIBs; (ii) the magnitude of additional loss absorbency G-SIBs should have; and (iii) procedures for phasing in the new requirement. Basel Committee Release. Final Rule.

Higher Global Minimum Capital Standards for Financial Institutions

Over the weekend, the oversight body of the Basel Committee on Banking Supervision announced a strengthening of bank capital requirements that will be presented to the Seoul G20 Leaders summit in November.  The package of reforms will increase the minimum common equity requirement from 2% to 4.5%.  In addition, banks will be required to hold a capital conservation buffer of 2.5% to withstand future periods of stress bringing the total common equity requirements to 7%.  These risk based capital ratios, as well as additional capital in the form of a countercyclical buffer and a non-risk based leverage ratio, will be phased in over time during a lengthy transition period.  “Systemically important” financial institutions are likely to be required to hold still additional capital, subject to a further ongoing review.  All of these requirements are subject to legislative and/ or regulatory action in the countries that govern the activities of banks within their jurisdictions.  National implementation by member countries will begin on January 1, 2013.  Member countries must translate the rules into national laws and regulations before this date. Basel Release.

Basel Committee Reaches Agreement on Capital and Liquidity Reform Package

On July 26, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced that it has reached agreement on the overall design of the Basel Committee’s capital and liquidity reform package. In particular, this includes the definition of capital, the treatment of counterparty risk, the leverage ratio, and the global liquidity standard. Basel Release.

Basel Committee Announces Adjustments to Basel II Requirements

On June 18, the Basel Committee on Banking Supervision announced adjustments to the Basel II market risk framework which was released in July 2009. The Committee: (i) reconfirmed the capital charge for non-correlation trading securitization positions, though a two-year transition period will be implemented during which charges may be based on the larger of the capital charges for net long and net short positions; (ii) set the floor for the correlation trading securitization positions at 8% of the standardized measurement method; and (iii) agreed to a coordinated start date of not later than December 31, 2011 for all elements of the July 2009 trading book package, which includes the Revisions to the Basel II Market Risk Framework and Guidelines for Computing Capital for Incremental Risk in the Trading Book. Release.