BCBS met in Basel on February 26-27, 2020 to review risks impacting the banking system, advance a range of supervisory initiatives, and promote the implementation of Basel III. In the meeting, members discussed vulnerabilities associated with leveraged loans and collateralized loan obligations, in addition to the work plan and future deliverables of the high-level Task Force on climate-related financial risk. BCBS also published a newsletter outlining the regulatory and supervisory implications related to benchmark rate reforms.
The BCBS newsletter on the benchmark rate reforms clarifies that, under the Basel Framework, amendments to capital instruments pursued solely for implementing benchmark rate reforms will not result in them being treated as new instruments for the purpose of assessing the minimum maturity and call date requirements or affect their eligibility for transitional arrangements of Basel III. BCBS will continue to monitor and assess issues related to benchmark reforms. During the course of this year, banks should expect greater supervisory scrutiny of their preparations and contingency planning. Based on its analysis, BCBS will consider what additional steps may be necessary to ensure a smooth and timely transition to the alternative reference rates, including issuing any further clarifications that may be necessary.
At the meeting, the members discussed progress made by banks in preparing for the transition from the London interbank offered rate (LIBOR) to alternative reference rates. In December 2019, BCBS and FSB launched a survey on exposures to LIBOR and the associated supervisory measures. The survey results and a report on remaining challenges to benchmark transition will be provided to G20 finance ministers and Central Bank governors in July. Additionally, BCBS reviewed the implementation status of Basel III across its member jurisdictions and discussed progress on a strategic review initiated last year. BCBS has consulted with members and stakeholders on its future priorities, its structure, and its processes. Members also discussed the feedback received and exchanged initial views on the way forward. BCBS aims to finalize its review in the course of the year. Other key highlights of the meeting are as follows:
- BCBS discussed the work plan and future deliverables of high-level Task Force on climate-related financial risk. The future deliverables of the taskforce include the development of effective supervisory practices to mitigate climate-related financial risks, along with a set of analytical reports on climate-related financial risks, including a literature review, and reports on the transmission channels of such risks to the banking system and on measurement methodologies.
- BCBS also took stock of members' current initiatives in this area and plans to publish a summary of this stocktake in March.
- As part of its ongoing Regulatory Consistency Assessment Program, BCBS approved the reports assessing the implementation of the Net Stable Funding Ratio, or NSFR, and Large Exposures standards in Hong Kong SAR, Indonesia, and Singapore. These reports will be published next month.
- BCBS agreed to publish, in March, a consultation paper on strengthening the operational resilience of banks and will publish, in due course, a report on member experience in using the countercyclical capital buffer.
- BCBS discussed the financial stability implications of the coronavirus outbreak for the banking system and exchanged information on the business continuity measures that banks and authorities have put in place. BCBS encourages banks and supervisors to remain vigilant in light of the evolving situation and notes the importance of effective cross-border information-sharing and cooperation when dealing with such shocks.
Keywords: International, Banking, Basel III, Climate Change Risk, ESG, Collateralized Loan Obligations, Benchmark Reforms, LIOR, RCAP, NSFR, Operational Risk, BCBS
Previous ArticlePRA Proposes Updates to Pillar 2A Capital Framework in UK
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).