regulatory updates may 12

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Supervisory Reporting

Technical standards on supervisory reporting endorsed with amended calendar

16th April 2014 - EBA

The European Banking Authority (EBA) welcomed the adoption by the European Commission (EC) of its Implementing Technical Standards (ITS) on supervisory reporting. In accordance with an Opinion issued by the EBA, the remittance dates of the first set of supervisory reports will be postponed from April/May 2014 to end June 2014, but there is no change to reference dates. This decision will ensure legal coherence and clarity given the later than scheduled entry into force of the ITS.

http://www.eba.europa.eu/-/eba-technical-standards-on-supervisory-reporting-endorsed-with-amended-calendar

Large Exposures

Final standard for measuring and controlling large exposures published by the Basel Committee

15th April 2014 – BCBS

The Basel Committee on Banking Supervision published a final standard that sets out a supervisory framework for measuring and controlling large exposures, which will take effect from 1 January 2019.

A large exposure framework protects banks from significant losses caused by the sudden default of an individual counterparty or a group of connected counterparties. The framework was designed so that the maximum possible loss a bank could incur if such a default were to occur would not endanger the bank's survival as a going concern.

http://www.bis.org/press/p140415.htm

http://www.bis.org/publ/bcbs283.htm

Exposures to Central Counterparties

Capital standard for bank exposures to central counterparties finalised by the Basel Committee

10th April 2014 – BCBS

The Basel Committee has published a final standard for calculating regulatory capital for banks' exposures to central counterparties (CCPs).

The final standard will replace the interim capital requirements that were published in July 2012. When developing the final standard - in close cooperation with the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) - the Basel Committee sought to simplify the underlying policy framework and to complement relevant initiatives undertaken by other supervisory bodies, including the CPSS-IOSCO Principles for financial market infrastructures.

The final standard will take effect on 1 January 2017.


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2 Counterparty Credit Risk

New approach for measuring counterparty credit risk exposures finalised by the Basel Committee

31st March 2014 - BCBS

The standardized approach for measuring counterparty credit risk exposures, improves on existing non-modeled methodologies for assessing the counterparty credit risk associated with derivative transactions. The standardized approach therefore replaces both the Current Exposure Method and the Standardized Method in the Basel capital framework. It also simplifies the framework by narrowing the range of methodologies available to banks in measuring their counterparty credit risk exposures.

The Committee's aim was to develop a risk-sensitive methodology that appropriately differentiates between margined and unmargined trades, and provides a more meaningful recognition of netting benefits than either of the existing non-modeled approaches.



Adoption of IFSB – 16

The IFSB Council Adopts IFSB-16 for the Islamic Financial Services Industry 27 March 2014 – IFSB

Revised Guidance on Key Elements in the Supervisory Review Process of Institutions Offering Islamic Financial Services (Excluding Islamic Insurance (Takāful) Institutions and Islamic Collective Investment Schemes)

The overall aim of the revised Standard is to update the earlier standard on this subject (IFSB-5), in setting forth guidance on key elements in the supervisory review process for authorities supervising institutions offering Islamic financial services (IIFS), taking into consideration the specificities of the IIFS, the lessons learnt from the global financial crisis, and, at the same time, to complement the existing international guidance on the supervisory review process issued by the Basel Committee on Banking Supervision (BCBS).

http://www.ifsb.org/preess_full.php?id=254&submit=more

CCAR Approval Announcement

Federal Reserve Board announces approval of capital plans of 25 bank holding companies participating in the Comprehensive Capital Analysis and Review (CCAR)

26th March 2014 – FED

The Federal Reserve on Wednesday announced it has approved the capital plans of 25 bank holding companies participating in the Comprehensive Capital Analysis and Review (CCAR). The Federal Reserve objected to the plans of the other five participating firms--four based on qualitative concerns and one because it did not meet a minimum post-stress capital requirement.

http://www.federalreserve.gov/newsevents/press/bcreg/20140326a.htm

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http://www.ifsb.org/preess_full.php?id=254&submit=more


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Foreign Banking Regulations – Kuwait

CBK Announces Principles, Rules and Regulations for Foreign Banks' Licensing and Operations in the State of Kuwait

25th March 2014 - CBK

H.E. the Governor of the Central Bank of Kuwait, Dr. Mohammad Y. Al-Hashel announces that CBK's Board of Directors has approved the Principals, Rules and Regulation for the Licensing and Operations of Foreign Banks' Branches, and the Regulations for Opening a Foreign Banks' Representative Offices, in the State of Kuwait.

http://www.cbk.gov.kw/cbkweb/servlet/cbkNewsMain?Action=newsdisp&id=1639

Prudential Standards Report

IOSCO Report Compares, Analyses Prudential Standards in the Securities Sector 10th March 2014 - IOSCO

The International Organization of Securities Commissions (IOSCO) published today the consultation report ‘A Comparison and Analysis of Prudential Standards’ in the Securities Sector, which undertakes a high level comparative analysis of the key prudential/capital frameworks for securities firms. The report seeks to highlight similarities, differences and gaps among the different frameworks. IOSCO´s objective is to update its 1989 Report on Capital Adequacy Standards for Securities Firms (Capital Standards Report), based on the issues identified in the consultation report published today.

http://www.iosco.org/news/pdf/IOSCONEWS323.pdf

AQR Manual

ECB Publishes Manual for Asset Quality Review (AQR)

11th March 2014 - ECB

The European Central Bank (ECB) has today published its manual on the methodology for Phase 2 of the AQR. The manual provides guidance for the national competent authorities (NCAs) and their third-party support on carrying out the exercise

The AQR is a key component of the comprehensive assessment, which aims to enhance the transparency of the balance sheets of significant banks, trigger balance sheet repair where necessary, and rebuild investor confidence prior to the ECB taking over its supervisory tasks in November 2014.

http://www.ecb.europa.eu/press/pr/date/2014/html/pr140311.en.html

http://www.ecb.europa.eu/pub/pdf/other/assetqualityreviewphase2manual201403en.pdf??e8cc41ce0e4ee40222cbe148574e4af7

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http://www.ecb.europa.eu/press/pr/date/2014/html/pr140311.en.html



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3 Basel III Monitoring Exercise

EBA publishes results of the Basel III monitoring exercise

6th March 2014 - EBA

The European Banking Authority (EBA) publishes today its fifth report of the Basel III monitoring exercise on the European banking system. This exercise, run in parallel with the one conducted by the Basel Committee on Banking Supervision (BCBS) at a global level, allowed to gather aggregate results on capital, Risk Weighted Assets (RWAs), liquidity and leverage ratios for banks in the European Union (EU).

http://www.eba.europa.eu/-/eba-publishes-results-of-the-basel-iii-monitoring-exercise-as-of-30-june-2013

http://www.eba.europa.eu/documents/10180/534414/Basel+III+Monitoring+Exercise+Report+%28as+of+30+June+2013%29.pdf

Risk Models and Bank Capital Regulation

Strategic Selection of Risk Models and Bank Capital Regulation: Rational Blinders 21st February 2014 – ECB

A topic of particular interest is the hypothesis that some banks may strategically choose risk models so as to get more favorable risk weights and economize on capital, especially when they are expected to cope with higher capital ratios.

The goal of this paper is to build a flexible theoretical framework to derive empirical implications about strategic model selection and discuss various policy options, taking into account several realistic constraints. It is shown in particular that some proposed tools such as floors or leverage ratios can have counter-intuitive equilibrium effects, which may limit their usefulness to avoid the strategic use of risk models.

http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1641.pdf

Approval of Supervision and regulation rules

The Federal Reserve Board approved a final rule strengthening supervision and regulation of large U.S. bank holding companies and foreign banking organizations

18th February 2014 – FED

The final rule establishes a number of enhanced prudential standards for large U.S. bank holding companies and foreign banking organizations to help increase the resiliency of their operations. These standards include liquidity, risk management, and capital. It also requires a foreign banking organization with a significant U.S. presence to establish an intermediate holding company over its U.S. subsidiaries, which will facilitate consistent supervision and regulation of the U.S. operations of the foreign bank. The final rule was required by section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.


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http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1641.pdf


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Risk Dashboard (EU Banking Sector)

EBA publishes risk dashboard of EU banking sector 14th February 2014 - EBA

The European Banking Authority (EBA) published the risk dashboard for Q4 2013, summarizing the main risks and vulnerabilities in the banking sector in the European Union (EU). The dashboard looks at the evolution of Key Risk Indicators (KRI) from 55 banks across the EU in the third quarter of 2013.

Data in this edition of the EBA dashboard illustrates that EU banks' capital positions were fairly stable, although declining RWAs contributed to higher capital ratios. The quality of banks' loan portfolios is still a source of concern, in light of the weak macroeconomic scenario across the EU. Profitability remains at low levels, as the low interest rates environment along with declining lending volumes continue to affect net margins interest

http://www.eba.europa.eu/-/eba-publishes-risk-dashboard-of-eu-banking-sect-1

Basel III Capital Adequacy Standards

CBK Approves Implementation of Basel III Capital Adequacy Standard for Kuwaiti Banks

1st February 2014 - CBK

CBK's Board of Directors has approved the structure of the Basel III capital adequacy standard and the transitional phase of its implementation. This standard is among a set of comprehensive reform measures developed by the Basel Committee on Banking Supervision (BCBS). The Governor clarified that Basel III capital adequacy standard calls for basic amendments to Basel II standard as represented by a) an increase in the ratio of regulatory capital; b) redefining the regulatory capital within a set of standards that is meant to improve the quality of the eligible capital by setting minimum limits that banks should maintain in the form of common equity; c) determining additional margins in the form of conservation and countercyclical capital buffers; d) introducing more constraints to the eligibility criteria of recognizing the tier 2 capital in addition to the deletion of tier 3 capital which was recognized by the Base II standard; and e) the setting of higher ratios for those banks identified as domestically systemically important banks (D-SIBs).


LCR Disclosure

Work on the Liquidity Coverage Ratio(LCR) finalized by the Basel Committee 12 January 2014- BCBS

Consistent with the Basel III agreement, national authorities will give effect to these disclosure requirements, and banks will be required to comply with them, from the date of the first reporting period after 1 January 2015.

This document was published to assist supervisors in their evaluation of the liquidity profile of assets held by banks, and, for the purposes of Basel III's LCR, to help promote greater consistency in High Quality Liquid Assets (HQLA) classifications across jurisdictions.

http://www.bis.org/press/p140112c.htm

http://www.bis.org/press/p140112d.pdf

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http://www.eba.europa.eu/-/eba-publishes-risk-dashboard-of-eu-banking-sect-1


http://www.bis.org/press/p140112c.htm

http://www.bis.org/press/p140112d.pdf

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4 Amendments to Basel III’s leverage ratio

Amendments to Basel III's leverage ratio issued by the Basel Committee 12 January 2014 - BCBS

A simple leverage ratio framework is critical and complementary to the risk-based capital framework that will help ensure broad and adequate capture of both the on- and off-balance sheet sources of banks' leverage. This simple, non-risk based "backstop" measure will restrict the build-up of excessive leverage in the banking sector.

A consultative version of the leverage ratio framework and disclosure requirements was published in June 2013. After carefully considering comments received and thoroughly analyzing bank data to assess potential impact, the Committee adopted a package of amendments, which pertains to the leverage ratio's exposure measure.

Implementation of the leverage ratio requirements has begun with bank-level reporting to national supervisors of the leverage ratio and its components, and will proceed with public disclosure starting 1 January 2015. The Committee will carefully monitor the impact of these disclosure requirements. The final calibration of the leverage ratio, and any further adjustments to its definition, will be completed by 2017, with a view to migrating to a Pillar 1 (minimum capital requirement) treatment on 1 January 2018.

http://www.bis.org/press/p140112a.htm


Identifying Non-Bank Non-Insurer G-SIFI’s

Proposed Assessment Methodologies for Identifying Non-Bank Non-Insurer G-SIFI’s IOSCO – 8th January 2014

The Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO) published for public consultation Assessment, methodologies for Identifying Non-bank Non-insurer Global Systemically Important Financial Institutions (NBNI G-SIFIs).

Systemically important financial institutions (SIFIs) are institutions whose distress or disorderly failure, because of their size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity. At the Seoul Summit in 2010, the G20 Leaders endorsed the FSB framework for reducing the systemic and moral hazard risks posed by SIFIs.


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http://www.bis.org/press/p140112a.htm



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