Sunday, April 9, 2017

BIS Issues New Consultation on G-SIBs

Author: David Schwartz

On March 30, 2017, the Basel Committee on Banking Supervision (BIS) issued a consultation proposing changes to the framework employed to designate global systemically important banks (G-SIBs). The consultation also proposes higher capital requirements on G-SIBs. The revised G-SIB assessment framework supersedes the framework proposed by BIS in July of 2013, a process BIS has committed to revisit every three years. This latest revision maintains the previously adopted system assessing the relative systemic importance of internationally active banks based on 12 indicators in five categories, resulting in a score that measures the systemic importance of each bank. The bank's overall score is then mapped to buckets that are associated with a higher loss absorbency (HLA) capital requirement. However, the new consultation proposes some modifications to the framework and also seeks feedback on the introduction of a new indicator for short-term wholesale funding.

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Monday, December 5, 2016

Basel Chair Calls for More Research into Bank Risk Models

Author: David Schwartz

In his December 2, 2016 keynote speech at the second Conference on Banking Development, Stability and Sustainability, Basel Committee Chairman Stefan Ingves invited the financial industry and academics to help better calibrate capital and liquidity standards. As the Committee finalizes Basel III, Ingves said that he welcomes research and rigorous analysis of how the Committee should think about the capital benefits of allowing banks to use internally modeled approaches to calibrate appropriate capital floors. While standardized modeling approaches have the benefit of being uniform and simple, they lack precision and may ignore real differences in risk among banks better addressed by internal models. Recognizing that “academic challenge…is an essential ingredient of a healthy financial and regulatory system,” Chairman Ingves says that the Basel Committee is eager to see research that answers questions like:


  • What are the pre-conditions for such models to produce better outcomes than, say, simpler standardized approaches? 
  • To whom do the benefits of improved modeling accrue?  For example, if a bank using a model can lower its capital requirements by, say, 30%, what are the financial stability and real economy benefits of such an approach? 
  • To what extent do the benefits of modeling accrue to lower-risk borrowers as opposed to the parties being compensated for developing and using the models?
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Tuesday, October 18, 2016

What to Expect from the Final Cut of Basel III

Author: David Schwartz

In an October 12, 2016 address before the European Parliament’s Committee on Economic and Monetary Affairs, William Coen, Secretary General of the Basel Committee (BIS) provided some insights into what BIS plans to do to finalize Basel III post-crisis reforms. Notably, Coen indicated that there may be some reexamination of certain aspects of the framework that may have missed their mark initially.  

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Thursday, March 24, 2016

Basel Proposes Changes to Reduce Variation in Credit Risk Weighted Assets

Author: David Schwartz

The Basel Committee on Banking Supervision today released a consultative document proposing a set of changes to the Basel III framework’s approaches for determining Banks' regulatory capital requirements for credit risk.  The goals of these changes are to (i) reduce the complexity of the regulatory framework and improve comparability; and (ii) address excessive variability in the capital requirements for credit risk.

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Wednesday, November 4, 2015

Basel Tightens the Reins on Internal Risk Modeling by Banks

Author: David Schwartz

In a November 2, 2015 speech in Madrid,  Stefan Ingves, Chairman of the Basel Committee and Governor of Sveriges Riksbank,  announced that the Basel Committee on Banking Supervision will revisit internal risk modeling by banks. According to Mr. Ingves, "ample evidence has accumulated to suggest that the current role of internal models in the regulatory framework does not strike the right balance between simplicity, comparability and risk sensitivity."  While "the use of internally modelled approaches was a defining feature of Basel II," the Basel Committee expects to revisit this reliance on internal modeling and, perhaps, broadly eliminate it for some risk categories.

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