Friday, January 6, 2017

BIS Postpones Final Act of Basel III

Miss Otis regrets she's unable to lunch today.

Author: David Schwartz J.D. CPA

In a sparsely worded press release on January 3, 2017, the Bank for International Settlements announced that the January 8 meeting of the group of central bank governors and heads of supervision (GHOS) has been postponed. At this meeting, the GHOS were to finalize long awaited rules that will determine how much capital lenders have to set aside against loans and other assets. Citing unfinished work necessary to calibrate banks' risk-weighted capital ratios, BIS chose to move finalization off for the present.  

The hold up on finalization relates to the use of internal bank risk models and the "floor" on how much capital a bank needs to hold irrespective of what its own model says. As we reported last month,  Basel Committee Chairman Stefan Ingves put out a call for research and rigorous analysis of how the Committee should consider benefits of allowing banks to use internally modeled approaches to calibrate appropriate capital floors. This delay offers banks, academics, and researchers at least a brief opportunity to influence the Committee's ultimate decisions on the matter.  

BIS is expected to meet again on March 1 and 2, when they will presumable take up the matter again. Until then, however, in the words of Cole Porter, "Miss Otis regrets she's unable to lunch today."