March 14, 2019

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.

 

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Keywords: International, Banking, Basel III, Regulatory Instruments, Basel III Monitoring, LCR, NSFR, Tier 1 Capital, Survey Results, BCBS

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