Central Bank of Bahamas Consults on Application of Basel Framework

The Central Bank of Bahamas had issued the first round of consultation in August 2018, setting out proposals for changes to the capital framework in Bahamas. The Central Bank of Bahamas has now published its response to the comments and questions received from industry during the first round of industry consultation. In the first round of consultation, the Central Bank of Bahamas had set out proposals for changes to the Basel II/III capital and liquidity frameworks. The proposals strengthen the prudential and supervisory framework of supervised financial institutions while improving the resilience and stability of the banking sector. This second-round consultation paper summarizes key reforms, which the Central Bank proposes to operationalize by introducing new capital regulations. The proposed regulations appropriately balance simplicity with comparability, without generating disproportionate compliance costs on supervised financial institutions, thus ensuring that the regulatory framework remains fit for purpose. This will be achieved by:

• Requiring supervised financial institutions to improve the quality of capital with a focus on common equity
• Requiring supervised financial institutions to maintain a forward-looking process for capital planning, by way of the Internal Capital Adequacy Assessment Process (ICAAP)
• Establishing minimum capital adequacy requirements and additional capital buffers, to support macro prudential regulation and graduated supervisory action
• Providing for supervisory intervention when any supervised financial institution is unable to meet its capital adequacy requirement
• Introducing a leverage ratio requirement to supplement the risk-based capital requirement
• Adopting the standardized approaches for calculating risk-weighted assets for credit, market, and operational risks 

Annex B to the consultation paper sets out guidelines for capital management and calculation of capital adequacy, which provide the overall framework adopted by the Central Bank of Bahamas for assessing the capital adequacy of a supervised financial institution. The Central Bank of Bahamas aims to ensure that all supervised financial institutions maintain a level of capital that is consistent with the risks to which they are exposed arising from their business activities. The guidelines highlight that the Central Bank has adopted the BCBS-recommended Basel III framework, which is consistent with the concept of proportionality and balances simplicity, comparability, and risk-sensitivity.

Comment Due Date: January 31, 2021

Keywords: Americas, Bahamas, Banking, Basel, Regulatory Capital, Guidelines, ICAAP, Credit Risk, Market Risk, Operational Risk, Proportionality, Central Bank of Bahamas