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
Pierre-Etienne Chabanel
Brings expertise in technology and software solutions around banking regulation, whether deployed on-premises or in the cloud.
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous Article
Agustín Carstens of BIS Speaks About New Role of Central BanksRelated Articles
EBA Finalizes Remuneration Standards for Investment Firms in EU
EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).
ECA Recommends Actions to Enhance Resolution Planning for Banks
EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.
BoE Publishes Key Elements of the 2021 Stress Testing for Banks in UK
BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.
PRA Proposes Rules on Identity Verification of Depositor Protection
PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).
FSB Publishes Work Program for 2021
FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.
FCA Issues Update on Move to New Data Collection Platform
FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.
Bundesbank Publishes Derivation Rules for Reporting by Banks
Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.
FED Revises Capital Planning and Stress Testing Requirements for Banks
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.
ECB Releases Results of Bank Lending Survey for Fourth Quarter of 2020
ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.
ESAs Publish Reporting Templates for Financial Conglomerates
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.
