FSI Assesses Basel Framework Implementation in Non-BCBS Jurisdictions
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).
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Keywords: International, Banking, Basel III, Basel Framework, Proportionality, RBC Regime, BCBS
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