Saturday, June 16, 2012

US Receives Mixed Marks on its Basel Implementation Report Card

In anticipation of the G20 Leaders Summit in Los Cabos, Mexico on June 18-19, The Basel Committee has issued its latest progress report on the implementation of its banking standards across member countries.  The Committee finds that, though significant progress has been made since its last report, there are jurisdictions which have missed the globally-agreed implementation dates for Basel II and 2.5. In addition, there are also jurisdictions, including the US, that the Committee feels have not made enough progress to date on Basel III and and run the risk of failing to meet the agreed Basel III implementation date.

As of end-May 2012, 21 of 27 Basel member countries have implemented Basel II, which had been due to come into force from end-2006. In addition, Indonesia and Russia have implemented Basel II’s Pillar 1 (minimum capital requirements). Argentina, China, Turkey and the United States are in the process of implementing Basel II.

With regard to Basel 2.5, which was due to be implemented from end 2011, 20 member countries have final rules that are in force. Argentina, Indonesia, Mexico, Russia, Turkey and the United States have not issued final regulations. Russia and the United States have issued draft regulations which partially cover Basel 2.5. Saudi Arabia has issued final regulations but these have not yet come into force. Among the 29 global systemically important banks (G-SIBs) identified in November 2011, nine are headquartered in jurisdictions that have not yet fully implemented Basel II and/or Basel 2.5. 
Three countries, India, Japan, and Saudia Arabia, have already published final regulations necessary for implementing the Basel III package.  Seven member countries, including the United States, run the risk of missing the January 2013 Basel III implementation deadline if they allow their domestic rule-making process to drag on.

Draft Basel III regulations have not yet been issued by seven Basel Committee member jurisdictions: Argentina, Hong Kong SAR, Indonesia, Korea, Russia, Turkey and the United States. 
The majority of these jurisdictions believe they can issue final regulations in time to implement by the deadline of 1 January 2013. However, for others, depending on their domestic rule-making process, meeting the deadline could be a significant challenge.

The Basel Committee plans to meet with US regulators at the end of June 2012 to discuss the progress made thus far, and ways the US can still meet its commitment to implement Basel III by January 2013. 

The first stage of the assessment – the qualitative review of the US self-assessment – has progressed according to schedule. However, due to the delay in publishing the final Basel 2.5 rule and the proposed Basel III rule, the review team’s completion of the US review within the agreed timelines has become increasingly challenging. The on-site component of the review, in which the review team will meet face-to-face with the US agencies, is currently scheduled for 25 – 29 June 2012.