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.
Keywords: International, Banking, Basel III, Regulatory Instruments, Basel III Monitoring, LCR, NSFR, Tier 1 Capital, Survey Results, BCBS
Previous ArticleAgustín Carstens of BIS Speaks About New Role of Central Banks
The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.
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).
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.
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
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.
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.
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.
The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.
The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.
The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.