Sunday, June 12, 2016

Should Size Matter When it Comes to Financial Regulation?

Author: David Schwartz

In a June 8, 2016 address in Berlin, Dr. Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank, spoke about potentially easing the burden on smaller financial institutions by calibrating financial regulation based on banking entities' size and complexity. Dr. Dombret began his remarks by warning that the burdens of regulatory reform may be overwhelming smaller institutions. And with only larger banks able to cope, increased regulation may have the unintended effect of driving more consolidation, resulting in less diversity, more concentration of risk, and perpetuation of the too big to fail phenomenon.

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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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Wednesday, February 25, 2015

Basel Banking Supervision Committee Priorities for 2015-2016

Author: David Schwartz
The Basel Committee on Banking Supervision has announced its planned areas of focus for 2015 and 2016 as it continues to propose and finalize the remaining elements of its Basel III regulatory reform agenda. The Committee will continue to pursue its post-crisis reform agenda, but will now look toward restoring confidence in capital ratios, ensuring consistency across the regulatory framework, monitoring and assessing the implementation of the framework, and improving the overall effectiveness of supervision. 
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Tuesday, December 30, 2014

A Cloud of Doubts About the Net Stable Funding Ratio

The NSFR is Flawed, Yet Still Fixable

Author: David Schwartz

In October 2014, the Bank for International Settlements (BIS) adopted final standards for the “net stable funding ratio” (NSFR), the last plank in the Basel III banking reforms.  The NSFR was first proposed in 2009, and elicited much concern from the industry regarding its potential effects on financial market functioning and the economy; so much so that BIS reproposed a new version in January 2014.  The final NSFR retains the structure of the January 2014 consultative proposal, but with changes giving national regulators more scope to exempt particular assets from the general funding requirement if that asset is linked to a particular funding source, and including rules for funding short-term interbank loans, derivatives trades, and assets posted as initial margin on derivatives contracts.  Despite these changes, there still remains what may be considered widespread concern in the financial industry that the final NSFR is improperly focused, subject to measurement deficiencies, and may lead to higher transaction costs in equity markets and beyond. 

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