Featured Product

    FSI Summarizes Scope of Application of Basel Framework

    August 29, 2019

    The Financial Stability Institute (FSI) of BIS published an executive summary on the scope of application of the Basel framework. Executive summaries by FSI provide brief synopses of the new and revised global financial regulatory standards. They mainly cover topics related to banking and insurance regulation and supervision. The Basel framework is designed to be applied to internationally active banks on a fully consolidated basis. In practice, this includes applying the framework to any holding company that is the parent entity within a banking group to ensure that it captures the risks of the banking group as a whole. As such, the framework applies on a consolidated basis to all internationally active banks at every tier within a banking group.

    The executive summary mentions the entities that are subject to regulatory consolidation and risk-based capital. All banking and other relevant financial activities conducted within a group that contains an internationally active bank should be captured through consolidation. This includes majority-owned or controlled banking entities, securities entities, and other financial entities (excluding insurance entities). There are a few exceptions to this general principle; for majority-owned securities and other financial subsidiaries that are not consolidated for capital purposes, all equity and other regulatory capital investments in the group will be deducted and the assets and liabilities, as well as third-party capital investments in the subsidiary, will be removed from the balance sheet of a bank. For less than wholly owned banking, securities, and other financial entities that are fully consolidated, the minority interests (capital held by third parties) that arise can only be recognized in consolidated capital if they meet the applicable definition of capital under Basel III. Any minority interest in excess of the subsidiaries’ minimum regulatory capital requirements is not recognized.

    The leverage, liquidity, and large exposure rules follow the same scope of application as that applied in the risk-based capital framework. Pillars 2 and 3 are key components of the Basel framework and generally follow the same scope of application as Pillar 1 requirements. With respect to Pillar 2, and as part of the consolidated risk assessment of a banking group, supervisors should also consider various risks that may not necessarily be subject to regulatory consolidation. One such risk, “step-in risk,” is the risk that a bank decides to provide financial support to an unconsolidated entity that is facing stress in the absence of, or in excess of, any contractual obligations to provide such support. If the supervisory assessment reveals that significant residual step-in risks have not been appropriately estimated or mitigated, a supervisor may use the measures that it determines to be appropriate based on the nature and extent of step-in risks identified. Some of these measures may include additional liquidity requirements; expansion of the stress testing framework to include entities that are not part of the scope of regulatory consolidation; and inclusion, within the scope of regulatory consolidation, of entities where significant residual step-in risk is present.

     

    Related Link: Executive Summary

     

    Keywords: International, Banking, Basel Framework, Pillar 1, Pillar 2, Pillar 3, Scope of Application, Basel III, FSI, BIS

    Featured Experts
    Related Articles
    News

    EBA Guide to Monitor Threshold for Intermediate Parent Undertakings

    The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).

    July 28, 2021 WebPage Regulatory News
    News

    PRA Finalizes Approach to Supervision of International Banks

    In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.

    July 26, 2021 WebPage Regulatory News
    News

    FCA Issues PS21/9 on Implementation of Investment Firms Regime

    The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.

    July 26, 2021 WebPage Regulatory News
    News

    EBA Proposes Regulatory Standards to Identify Shadow Banking Entities

    The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.

    July 26, 2021 WebPage Regulatory News
    News

    IOSCO Proposes Recommendations on ESG Ratings and Data Providers

    The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.

    July 26, 2021 WebPage Regulatory News
    News

    ESMA Group Issues Recommendations on RFR Switch in Interdealer Market

    The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.

    July 26, 2021 WebPage Regulatory News
    News

    EC to Defer Application of SFDR Standards Till July 2022

    The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.

    July 23, 2021 WebPage Regulatory News
    News

    EIOPA Consults on Reporting and Disclosures Under Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) proposed to amend the supervisory statement on supervision of run-off undertakings that are subject to Solvency II regulation.

    July 23, 2021 WebPage Regulatory News
    News

    BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance

    The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.

    July 22, 2021 WebPage Regulatory News
    News

    EBA Seeks Views on Proportionality Assessment Methodology

    The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.

    July 22, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7295