BCBS Survey Examines Challenges Banks Face in Implementing Basel III
BCBS published a working paper that presents results of the third-wave survey conducted by the Research Task Force on the role of multiple regulatory constraints in the Basel III framework. The questions test the impact of a regulatory instrument and provides an indication of the interaction among the said instruments and the problems created by the growing complexity of the Basel III framework.
The report analyzes data provided by 86 Group 1 banks (banks that have tier 1 capital of more than EUR 3 billion and are internationally active) and 42 Group 2 banks (all other banks that submitted the survey). To provide additional insights (and check data quality), answers of banks from this survey are being merged with the bank information, on other topics, collected through the Basel III monitoring exercise. The report first summarizes the objectives and the structure of the survey, provides an overview of the sample used, and presents an in-depth analysis of the impact of regulatory instruments covered in the survey. The survey covers banks' management of tier 1 capital; management of leverage ratio; allocation of risk exposure across various lines of business; behavioral reactions to stress test results, liquidity coverage ratio (LCR), and net stable funding ratio (NSFR); and the most important challenges associated with meeting regulatory requirements.
The survey results show that most banks are confident in their capital positions and can manage regulatory complexity. There is substantial variation in the regulatory requirement that banks report as hardest to meet. The tier 1 capital ratio is the most challenging for 35% of banks, the NSFR for 15%, total loss-absorbing capacity (TLAC) for 12%, the leverage ratio for 11%, and the LCR for 6% of banks. To adjust to the LCR, banks primarily increase holdings of high-quality liquid assets (HQLA). In contrast, to adjust to the NSFR, banks primarily issue more long-term debt. The analysis reveals that the most important determinants of target management tier 1 buffers are financial market conditions and regulatory constraints. Banks indicated that the complexity of the Basel framework is the most difficult challenge associated with meeting regulatory requirements. Uncertainty with respect to implementation and/or changes to regulation were also reported as important.
Related Links
Keywords: International, Banking, Basel III, Regulatory Instruments, Basel III Monitoring, LCR, NSFR, Tier 1 Capital, Survey Results, BCBS
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Karen Moss
Senior practitioner in asset and liability management (ALM) and liquidity risk who assists banking clients in advancing their treasury and balance sheet management objectives
Previous Article
BCBS Assesses Progress in Implementing Principles for Risk ReportingRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
