In a recent report, the Basel Committee on Banking Supervision (BCBS) assessed implementation of the net stable funding ratio (NSFR) and the large exposures framework in the European Union to be Largely Compliant with its global Basel standards. These reports form part of the Regulatory Consistency Assessment Program (RCAP) and the outcome of the assessment is summarized using a four-grade scale of being Compliant, Largely Compliant, Materially Non-Compliant, and Non-Compliant.
As stated in the NSFR report, as of end-March 2022, three of the four components of the Basel NSFR standard (scope, minimum requirements, and application issues; available stable funding (ASF); and disclosure requirements) have been assessed as Compliant. The remaining component, required stable funding (RSF), has been assessed as Largely Compliant. This component grade is driven by the cumulative impact of nine not material findings. In addition, the report identifies an item for follow-up assessment, noting that that the RSF factors for certain types of transaction would be adjusted in aligning the European Union regulations with the Basel NSFR standard by June 2025, which should be subject to review in a future RCAP assessment.
With respect to the large exposures framework however, as of end-March 2022, the regulations in the European Union have been assessed as Largely Compliant with the Basel large exposure standards. This is one notch below the highest overall grade of Compliant. The three components of the Basel large exposures standard (scope and definitions; minimum requirements and transitional arrangements; and value of exposures) have been assessed as Compliant, Largely Compliant, and Compliant, respectively. The overall grade is driven by a potentially material finding related to the limit applicable to trading book exposures and nine findings that were deemed not material. For trading book exposures, the European Union regulations allow for the large exposure limit to be exceeded up to 600% of a bank’s Tier 1 capital. In addition, the report identified an item for follow-up assessment, noting that the European Commission has proposed an amendment to the current provisions on the possibility of using own volatility estimates via the deletion of the corresponding provisions in the Capital Requirements Regulation or CRR, which should be subject to review in a future RCAP assessment.
Keywords: International, Europe, EU, Banking, Large Exposures, NSFR, RCAP, Basel, Liquidity Risk, BCBS
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