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
MAS and Temasek jointly released a report to mark the successful conclusion of the fifth and final phase of Project Ubin, which focused on building a blockchain-based multi-currency payments network prototype.
PRA published a public working draft, or PWD, of version 1.2.0 of the BoE Insurance XBRL taxonomy, along with the related technical artefacts.
CPMI published a report that sets out nineteen building blocks for a global roadmap to improve cross-border payments.
EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.
APRA updated the lists of the Direct to APRA (D2A) validation rules for authorized deposit-taking institutions, insurers, and superannuation entities.
PRA updated the statement that provides guidance to regulated firms on implementation of the EBA guidelines on reporting and disclosure of exposures subject to measures applied in response to the COVID-19 crisis.
EBA updated the 2019 list of closely correlated currencies that was originally published in December 2013.
ESMA published the final report on the guidelines on securitization repository data completeness and consistency thresholds.
FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).
APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.