Revolutionizing Awareness

helping humanity, make choices, more so through awareness, than ignorance

Posts Tagged ‘Basel Committee on Banking Supervision’

Basel III norms will kick-start from January 1, 2013

Posted by Admin on January 1, 2012

http://www.thehindu.com/business/Economy/article2761226.ece?css=print

By

K. T. Jagannathan

The Reserve Bank of India draft guidelines prescribe minimum capital requirements and also capital conservation buffer. Photo: Paul Norionha
Photo: Paul Norionha
The Reserve Bank of India draft guidelines prescribe minimum capital requirements and also capital conservation buffer.

Reserve Bank of India prescribes Tier I capital at 7 per cent of risk-weighted assets

The implementation of Basel III capital regulation will kick-start from January 1, 2013. It will be fully implemented by March 31, 2017. The Reserve Bank of India indicated this while releasing the draft guidelines outlining the proposed implementation of Basel III capital regulation in India.

These guidelines are in response to the comprehensive reform package entitled ‘Basel III: A global regulatory framework for more resilient banks and banking systems’ of the Basel Committee on Banking Supervision (BCBS), issued in December, 2010.

The draft guidelines prescribe minimum capital requirements and also capital conservation buffer.

The apex bank has said that the common equity Tier-1 (CET1) capital must be at least 5.5 per cent of the risk-weighted assets (RWAs). While stating that the Tier-1 capital must be at least 7 per cent of RWAs, it has proposed the total capital to be at least 9 per cent of RWAs. The implementation period of minimum capital requirements and deductions from common equity will begin from January 1, 2013, and be fully implemented as on March 31, 2017. Under the Basel III norms, Tier-I capital should predominantly consist of common equity.

The objective is to improve the quality of capital.

The draft guidelines have also proposed a capital conservation buffer in the form of common equity of 2.5 per cent of RWAs.

The capital conservation buffer is designed to ensure that banks build up capital buffers during normal times (that is, outside periods of stress), which can be drawn down as losses incurred during the stressed period. The requirement is based on simple capital conservation rules designed to avoid breaches of minimum capital requirements. The capital conservation buffer in the form of a common equity will be phased in over four years in a uniform manner. The capital conservation buffer requirement is proposed to be implemented between March 31, 2014, and March 31, 2017.

The draft guidelines have also indicated that a counter-cyclical buffer within a range of 0-2.5 per cent of common equity or other fully loss absorbing capital will be implemented according to national circumstances.

“The purpose of counter-cyclical buffer is to achieve the broader macro-prudential goal of protecting the banking sector from periods of excessive aggregate credit growth,” the Reserve Bank says. The counter-cyclical capital buffer would be introduced as an extension of the capital conservation buffer range.

The implementation schedule indicated above, however, will be finalised taking into account the feedback received on these guidelines.

According to the guidelines, instruments, which no longer qualify as regulatory capital instruments, will be phased out during the period beginning from January 1, 2013, to March 31, 2022.

For OTC derivatives, in addition to the capital charge for counterparty default risk under current exposure method, banks will be required to compute an additional credit value adjustments (CVA) risk capital charge.

The parallel run for the leverage ratio will be from January 1, 2013, to January 1, 2017, during which banks are expected to strive to operate at a minimum Tier-1 leverage ratio of five per cent.

The leverage ratio requirement will be finalised taking into account the final proposal of the Basel Committee.

The apex bank has said comments/feedback on the draft guidelines, including implementation schedule, should be sent by February 15, 2012.

Keywords: Basel III capital regulationRBI

Also go to

http://www.moodysanalytics.com//basel3implementation2011

to download the Implementing Basel III: The Challenges, Options & Opportunities Whitepaper

Advertisements

Posted in Economic Upheavals | Tagged: , , , , , , , | Comments Off on Basel III norms will kick-start from January 1, 2013

Global bankers meet in Basel for reform

Posted by Admin on September 13, 2010

By Brooke Masters and Patrick Jenkins, FT.com
September 10, 2010 — Updated 0113 GMT (0913 HKT)
Death of the Feds
(FT) — Banking supervisors and central bankers from 27 countries will gather in Basel, Switzerland, this weekend to adopt what is set to be the most important regulatory reform package since the financial crisis, even as German, US and other officials continue to jockey over some provisions.
The officials overseeing the Basel Committee on Banking Supervision, the global rule-making body, are expected to set minimum requirements for the amount of top quality capital banks must hold against future losses and announce a timetable for reaching the standards. The figures are set to determine the shape, stability and profitability of global banking for years to come.
Ben Bernanke, chairman of the US Federal Reserve, Mervyn King, governor of the Bank of England, and Jean-Claude Trichet, president of the European Central Bank, are among those meeting on Sunday to thrash out the final details of the banking reform package known as Basel III.
A large group of countries has coalesced round a plan to require banks to hold core tier one capital – essentially equity and retained profits – equal to 5 per cent of their risk-weighted assets, compared with the current requirement of 2 per cent. In a new measure, banks would also have to hold a buffer of additional capital equal to 2-3 per cent of assets, meaning banks that fall below a core tier one ratio of at least 7-8 per cent or face restrictions on their ability to pay dividends and bonuses.
However, some countries have so far refused to sign up and are still pushing for totals as low as 4 per cent or as high as 10 per cent, including the buffer, people familiar with the talks said. Germany has been particularly vocal in its concerns about setting the ratio too high. “It’s not finished,” said one regulator.
The exact numbers could also shift as part of the negotiations over the timetable. US officials would like the minimums in place in 2012 with the buffers a few years later, while a German central banker said this week he expected the minimums and buffers to phase in over five to 10 years starting in 2013. Some participants believe a longer timetable may be the price of tougher numbers.
Analysts believe the outcome may also turn on the issue of so-called contingent convertible capital, nicknamed “cocos”. These instruments, essentially bonds that only convert into equity under a stressed scenario, do not count towards the core tier one minimum, but the French have been arguing that they should be usable to meet the buffer capital requirements. This apparently technical issue could radically change the effect of the regime. If the buffer can be funded with cheaper cocos, the result would be far less severe.
One person close to the process said the Basel group was unlikely to allow exceptions for smaller banks, as some in Germany had hoped. The group will insist the “entire world” be subjected to “a totally level playing field with absolutely no exceptions”, the person said.
Sunday’s meeting may well have to defer decisions on the size of two other planned parts of the package: surcharges for extra-large banks and a second buffer designed to counter the economic cycle.
The influence of the committee’s decisions could be profound. If it sets requirements too low, another banking crisis could result; too high and the world economy could struggle with a lack of credit.
James Gorman, Morgan Stanley’s chief executive, said the Basel reforms were “the single most important reforms that will be made coming out of this financial crisis”.

Posted in Economic Upheavals | Tagged: , , , , , , | Comments Off on Global bankers meet in Basel for reform