FSI published a paper that explores the state of implementation of the key Basel standards, while outlining the associated proportionality practices, in 100 jurisdictions that are not members of BCBS. The prudential requirements covered in this study include risk-based capital (RBC) rules, leverage requirements, two quantitative liquidity standards, and the large exposures standard, which are collectively referred to as Pillar 1 requirements. The paper also catalogs a range of proportionality practices applied in non-BCBS jurisdictions, providing a reference for authorities that seek to tailor the Basel framework to fit their country-specific circumstances.
The findings state that all jurisdictions have adopted some version of the Basel RBC regime, while most have implemented, in some manner, quantitative liquidity standards and the large exposures rule. Of the Pillar 1 requirements, most of the surveyed jurisdictions have adopted the RBC regime in various forms, the liquidity coverage ratio (LCR), and some version of the large exposures standard. All 100 jurisdictions have adopted some iteration of the RBC regime (Basel I, II, or III), while 81 countries reported the adoption of either the LCR (54 jurisdictions) or domestic liquidity rules (27). Similarly, 91 jurisdictions have adopted the large exposures rule, based on either the 2014 large exposures standard (14), some variation of the 1991 standard (38), or their own domestic large exposure rule (39). Despite its relative simplicity, the leverage ratio has been adopted by only 16 surveyed jurisdictions, with another four countries applying a domestic leverage rule. Similarly, the NSFR has been adopted by 15 jurisdictions.
The lack of global prudential standards for non-internationally active banks has led national authorities to implement a range of proportionality approaches. In their implementation of Basel standards, nearly all jurisdictions apply proportionality, simplifying standards in some cases and applying more stringent requirements in others. As countries shift to the Basel III RBC regime, more extensive proportionality strategies are applied. In practice, jurisdictions follow one or a combination of three proportionality strategies with respect to the Basel III RBC regime. Within the RBC regime, the market risk capital requirement is most often subject to a proportionate approach. The perceived complexity of the market risk framework has led many countries to either exempt all banks from the market risk capital requirements (Basel I countries) or to exempt banks with small trading books from the market risk capital charge (Basel III countries).
Keywords: International, Banking, Basel III, Basel Framework, Proportionality, RBC Regime, BCBS
Previous ArticleMAS Publishes Report on the Financial Stability Review for 2018
EIOPA submitted—to the European Parliament, the Council of the European Union, and EC—its 2020, fifth, and last annual report on long-term guarantee measures and measures on equity risk.
The BIS Innovation Hub Swiss Centre, SNB, and the financial infrastructure operator SIX announced the successful completion of a joint proof-of-concept (PoC) experiment as part of the Project Helvetia.
EBA published the final draft regulatory technical standards for calculation of own funds requirements for market risk, under the standardized and internal model approaches of the Fundamental Review of the Trading Book (FRTB) framework.
EIOPA published discussion paper on a methodology for the potential inclusion of climate change in the Solvency II (sometimes also written as SII) standard formula when calculating natural catastrophe underwriting risk.
EU published, in the Official Journal of the European Union, corrigenda to the Directive and the Regulation on the prudential requirements and supervision of investment firms.
MAS proposed amendments to certain regulations, notices, and guidelines arising from the Banking (Amendment) Act 2020.
PRA published a statement that explains when to expect further information on the PRA approach to transposing the Capital Requirements Directive (CRD5), including its approach to revisions to the definition of capital for Pillar 2A.
RBNZ launched consultations on the scope of the Insurance Prudential Supervision Act (IPSA) 2010 and on the associated Insurance Solvency Standards.
SRB published the work program for 2021-2023, setting out a roadmap to further operationalize the Single Resolution Fund and to achieve robust resolvability of banks under its remit over the next three years.
EIOPA is consulting on the relevant ratios to be mandatorily disclosed by insurers and reinsurers falling within the scope of the Non-Financial Reporting Directive as well as on the methodologies to build these ratios.