WASHINGTON The Basel Committee on Banking Supervision has issued "harmonized templates" for regulators to adopt in order to ensure that banks' risk and capitalization disclosures are comparable and consistent.
The Basel Committee's so-called "Pillar 3" disclosure framework revisions, which were finalized on Wednesday, will replace the existing framework that was first introduced in 2004 and that has been revised several times since then, most recently in 2009. The new framework aims at striking a balance between the need for a bank's vital statistics such as assets, debt and risk to be clear and uniform, while also allowing bank managers to explain their institution's particular strategy.
"The revised disclosure regime introduces a 'hierarchy' of disclosures; prescriptive fixed form templates are used for quantitative information... essential for the analysis of a bank's regulatory capital requirements, and templates with a more flexible format are proposed for information which is considered meaningful to the market but not central to the analysis of a bank's regulatory capital adequacy," the committee said.
Banks would have to develop a board-approved disclosure policy to adhere with the Pillar 3 requirements consistent with the framework's principles, which say that disclosures should be clear, comprehensive, comparable, consistent and meaningful to users. The Basel Committee calls for adherents to the Basel III framework including U.S. regulators to implement the revised disclosure rules in time for banks to include the disclosures in their 2016 end-of-year filings.
The Basel committee in recent months has issued a series of final guidelines on how regulators should implement their Basel III commitments, including revised securitization rules, a net stable funding ratio and credit risk standards. Those revisions have generally tended to favor consistent, leverage-based capitalization rules over more the fuzzier risk-weighted regime envisioned in Basel I.
Many observers have said that the Basel Committee's moves to change the way banks internally weight the risks of their assets and how those ratings affect their disclosures is one of the most important reforms the committee will recommend. Standard and comparable disclosures will make markets better able to compare banks' balance sheets and assess whether institutions are appropriately capitalized.