Andreas Dombret of Bundesbank Spoke on Basel III Compromise and Beyond
Andreas Dombret of Deutsche Bundesbank spoke at the Bundesbank reception as part of the Euro Finance Week 2017 in Frankfurt. He discussed the recent compromises reached on Basel III, also reflecting on the finalization of Basel III regulations, the future challenges to be faced, and the ways to ease the burden on banks.
With regard to the Basel III compromises, he highlighted that a successful outcome was achieved at two points in the negotiations. The first was last November, with what is known as the Santiago compromise. As a result of this compromise, the strict German methods for calculating real estate risks are now recognized as risk-reducing while the degrees of freedom for those calculating risk with internal models have been preserved to a considerable extent. "Compared with what was originally proposed, the capital increase for German banks has been halved—this was achieved through a tough negotiation stance on our part." The second, ongoing round of negotiations concerns the calibration of the output floor—the threshold below which calculations of capital requirements using internal models are not allowed to fall. However, he agreed that this standard will help to put banks' capital base on a sound and sustainable footing, thus helping to restore further confidence in the banking sector.
Mr. Dombret also examined the effects of regulations that msut be cushioned. He believes that the regulatory capital and liquidity requirements constitute one of many challenges that face German banks and savings banks. Other important topics are in connection with the changeover to International Financial Reporting Standard (IFRS) 9 and the increase in loss-absorbing capital. He suggested on transitioning to the new requirements gradually, to avoid overburdening the credit institutions in the short term. Supervisors must generally look for ways to ease the burden on banks and savings banks, without neglecting the goal. Therefore, he recommended further strengthening of the principle of proportionality in regulation to relieve small and medium-size institutions. He also recommending that the targeted review of internal models (TRIM) project, under the Single Supervisory Mechanism, should be conducted in a responsible and considered manner.
He said, "I am convinced that the current projects should be followed by a sort of regulatory break ... ." Even if regulators take a break, banks and savings banks need to continue implementing the decisions taken. He also added that supervisors ought to utilize this time to thoroughly review the impact of the reforms, with the aim of correcting the identified gaps, duplication of work or error. He mentioned that the potential challenges and opportunities are immense and explained: "The banking sector is already compelled to proactively address structural change. Now Brexit has come along, too. I see this as the greatest medium-term challenge facing the European economy and thus, not least, the financial sector as well." He then reiterated that, following the severe financial crisis, a new architecture has been successfully created for a resilient and high-performance financial system.
Related Link: Speech (PDF)
Keywords: International, Europe, Germany, Banking, Basel III, IFRS 9, Capital Floor, TRIM, Bundesbank, BIS
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Dieter Van der Stock
IFRS subject matter expert; LDTI subject matter expert; accounting authority; risk management specialist
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Next Article
US Agencies Published Semi-Annual Regulatory AgendaRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.