Featured Product

    National Banks in EU Urge EC to Refrain from Basel Rule Deviations

    September 07, 2021

    In a joint letter to the European Commission (EC), the Central Bank of Malta (CBM) and 24 other national central banks and financial supervisory authorities from 20 member states are calling for EC to ensure that the proposal on updated capital adequacy rules for banks in the European Union follows the global agreement known as Basel III. During the autumn, EC is expected to publish a proposal for updated capital adequacy rules for banks in the European Union. The authorities emphasize that the output floor for risk-weighted assets and the standard method for credit risk should comply with the international agreement and that the European Union should not introduce any deviations from the rules. Deviating from the Basel agreement could have a negative impact on confidence in both the European banking sector and the regulatory framework in European Union. It is therefore important that the global agreements are met in full, on time, and in a consistent manner.

    According to the letter, the European Union implementation should adhere to the letter and the spirit of the Basel III agreement. Diluting the framework would not be in the best interests of Europe. The pandemic shows that more resilient banks are better able to support the real economy, even during times of crisis. Ensuring that banks are resilient is, therefore, good for economic growth, something Europe clearly needs. Adhering to the Basel framework would also facilitate market monitoring, as it simplifies comparisons of different banks. This, in turn, would assist in the much-needed restructuring of the European banking industry. However, if the European Union deviates from the agreement, Basel III implementation may be derailed in other countries also, not to mention the following three important implications of this for the European Union:

    • The output floor should be implemented as agreed in Basel, with all risk-based capital measures and buffers calculated on the basis of one single set of risk-weighted assets. This has several benefits: it is simple and transparent; it reduces the variability of risk-weighted assets; it builds confidence in banks’ capital structures; and it improves the level playing field between banks using internal models and banks using standardized models as well as between different banks using internal models worldwide. This also increases the usability of the capital buffers. A parallel stack approach to the output floor does not attain these benefits and, therefore, should not be pursued. Furthermore, the application of the output floor to all levels of consolidation, consistent with the prudential requirements such as the leverage ratio, should be considered.
    • The new Basel standardized approach for credit risk should be implemented as agreed globally. This approach is more risk-sensitive than the old one and it entails a delicate balance between the risks in different exposure types.
    • The European Union-specific deviations should be minimized and the existing deviations from Basel should be re-assessed. In addition, the European Union should refrain from making further exemptions from Basel III or from making the banking regulatory framework more complex.


    Related Links

    Keywords: Europe, EU, Malta, Banking, Credit Risk, Basel, Regulatory Capital, CBM, Central Bank of Malta

    Featured Experts
    Related Articles

    ESAs Issue Multiple Regulatory Updates for Financial Sector Entities

    The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.

    November 15, 2022 WebPage Regulatory News

    ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments

    The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.

    November 10, 2022 WebPage Regulatory News

    IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets

    The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.

    November 09, 2022 WebPage Regulatory News

    EBA Finalizes Methodology for Stress Tests, Issues Other Updates

    The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups

    November 09, 2022 WebPage Regulatory News

    OSFI Sets Out Work Priorities and Reporting Updates for Banks

    The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.

    November 07, 2022 WebPage Regulatory News

    APRA Finalizes Changes to Capital Framework, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.

    November 03, 2022 WebPage Regulatory News

    BIS Hub and Central Banks Conduct CBDC and DeFI Pilots

    The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.

    November 03, 2022 WebPage Regulatory News

    ECB Sets Deadline for Banks to Meet Its Climate Risk Expectations

    The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.

    November 02, 2022 WebPage Regulatory News

    ESAs, ECB, & EC Issue Multiple Regulatory Updates for Financial Sector

    Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)

    October 31, 2022 WebPage Regulatory News

    EC Adopts Final Rules Under CRR, BRRD, and Crowdfunding Regulation

    The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)

    October 26, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8582