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U.S. regulators are facing a series of difficult choices as they weigh how to finalize Basel III capital and liquidity rules next year, including how closely they adhere to an international agreement or whether they make changes for smaller institutions.
December 27 -
Regulators are expected to miss a global deadline to finalize Basel III capital and liquidity requirements by yearend.
November 6 -
Eight of the more than two dozen countries involved have adopted a package of capital and liquidity rules known as Basel III, according to the latest progress report by the Basel Committee on Banking Supervision.
October 30
WASHINGTON — The Basel Committee on Banking Supervision said Friday it is closely evaluating the differences in how countries implement the Basel III accord.
The committee, which already runs a peer review process among the more than two dozen countries that signed off on the December 2010 package, wants to look specifically at how countries may vary their adoption of new capital standards under the agreement.
"While some variation in risk-weighted assets is natural and desirable, excessive variation diminishes the comparability of the reported capital ratios," according to the committee's report to the Group of 20 Finance Ministers and Central Bankers ahead of their upcoming meeting on April 18 and April 19 in Washington.
The committee said it is looking at where standards under the Basel III agreement could be changed to limit large gaps in implementation across the 27-member countries.
It named three policy areas it is currently considering: improving disclosure and regulatory data to help understand banks' calculations of risk-weighted assets; narrowing the modeling choices for banks; and further harmonizing supervisory practices with regard to model approvals.
"In this context, the committee's fundamental review of the market risk framework will address some of the key findings with regard to the risk measurement of trading book assets," the committee said in its report.
Basel's report is intended to update leaders on how much progress has been made by countries in adopting Basel III. Unlike the previous report released in October, the Basel committee also examined banks' progress in bolstering their capital bases and highlighted specific implementation-related shortcomings.
"Many committee members now have final Basel III rules in place and the progress made by banks in strengthening their capital base is encouraging," said Stefan Ingves, chairman of the committee and governor of Sveriges Riksbank, in a press release. "Nevertheless, there is more to do. In particular, those jurisdictions that have not yet issued final versions of their domestic Basel III regulations need to do so as soon as possible, and bring themselves into line with the internationally agreed implementation timetable."
Eight more countries have finalized the package of rules since the last report in October, and will make those rules effective by the end of the year, bringing the total to 14.
The remaining members, including the United States and the European Union, have yet to finalize their rules. U.S. regulators said they would postpone finalizing the rules until they've had enough time to wade through the 2,500 comment letters that were submitted by industry stakeholders. Officials have indicated they plan to release a final package in the spring.
"The Basel Committee is urging those jurisdictions to issue final versions of their regulation as soon as possible and to align their implementation with the internationally agreed transition period deadlines," the report stated. "It is particularly important for member jurisdictions that are home to globally systemically important banks to complete the issuance of final Basel III regulations."
Despite some delays by certain members, the committee said national supervisors have been working to strengthen the capital base of internationally active banks to meet the new Basel III standards. Global banks have raised their capital ratio from 7.1% to 8.5% of risk-weighted assets.
The committee said it plans to finalize its work on the leverage ratio in 2013 and most of the rules concerning Net Stable Funding Ratio, trading book, securitization and large exposures should also be finalized in 2014.
They also called on the G-20 leaders to renew their commitment to completing the Basel III regulatory reforms "consistently, expeditiously and completely."
"Full, timely and consistent implementation of Basel III remains fundamental to building a resilient financial system, maintaining public confidence in regulatory ratios and providing a level playing field for internationally active banks," the report stated.
