The document discusses the Basel III banking regulations which aim to strengthen bank capital requirements and introduce new regulatory standards on bank liquidity and leverage. It provides a timeline of Basel III negotiations and implementations. It then summarizes assessments of Basel III's expected macroeconomic impact, which generally find a small negative output effect but disagree on the size of increases to lending spreads. The document also discusses uncertainties in these assessments and potential microeconomic effects on individual banks, including strategies banks may employ and potential unintended consequences regarding risk-taking and financial system stability.
Basel iii Compliance Professionals Association (BiiiCPA) - Part ACompliance LLC
Certified Basel iii Professional (CBiiiPro)
Objectives: The seminar has been designed to provide with the knowledge and skills needed to understand the new Basel III framework and to work in Basel III Projects.
Target Audience: This course is intended for managers and professionals working in Banks, Financial Organizations, Financial Groups and Financial Conglomerates who need to understand the new Basel III requirements, challenges and opportunities. It is also intended for management consultants, vendors, suppliers and service providers working for financial organizations.
This course is highly recommended for:
- Managers and Professionals involved in Basel III (decision making and implementation)
- Risk and Compliance Officers
- Auditors
- IT Professionals
- Strategic Planners
- Analysts
- Legal Counsels
- Process Owners
Basel iii Compliance Professionals Association (BiiiCPA) - Part ACompliance LLC
Certified Basel iii Professional (CBiiiPro)
Objectives: The seminar has been designed to provide with the knowledge and skills needed to understand the new Basel III framework and to work in Basel III Projects.
Target Audience: This course is intended for managers and professionals working in Banks, Financial Organizations, Financial Groups and Financial Conglomerates who need to understand the new Basel III requirements, challenges and opportunities. It is also intended for management consultants, vendors, suppliers and service providers working for financial organizations.
This course is highly recommended for:
- Managers and Professionals involved in Basel III (decision making and implementation)
- Risk and Compliance Officers
- Auditors
- IT Professionals
- Strategic Planners
- Analysts
- Legal Counsels
- Process Owners
This paper was presented at the SAFA Workshop on Impact of Basel II, held on September 8, 2014 in Dhaka, Bangladesh. By Sayyid Mansoob Hasan, FCMA - Chairman SAFA Task Force to develop a strategy to combat corruption in SAARC Region.
SAFA: South Asian Federation of Accountants
This presentation is the one stop point to learn about Basel Norms in the Banking
This is the most comprehensive presentation on Risk Management in Banks and Basel Norms. It presents in details the evolution of Basel Norms right form Pre Basel area till implementation of Basel III in 2019 along with factors and reason for shifting of Basel I to II and finally to III.
Links to Video's in the presentation
Risk Management in Banks
https://www.youtube.com/watch?v=fZ5_V4RW5pE
Tier 1 Capital
http://www.investopedia.com/terms/t/tier1capital.asp
Tier 2 Capital
http://www.investopedia.com/terms/t/tier2capital.asp
Basel I
http://www.investopedia.com/terms/b/basel_i.asp
Capital Adequacy Ratio
http://www.investopedia.com/terms/c/capitaladequacyratio.asp
Basel II
http://www.investopedia.com/video/play/what-basel-ii/?header_alt=c
Basel III
http://www.investopedia.com/terms/b/basell-iii.asp
RBI Governor - Raghuram G Rajan on the importance if Basel III regulations
https://youtu.be/EN27ZRe_28A
A set of international banking regulations put forth by the Basel Committee on Bank Supervision, which set out the minimum capital requirements of financial institutions with the goal of minimizing credit risk. Banks that operate internationally are required to maintain a minimum amount (8%) of capital based on a percent of risk-weighted assets.
This paper was presented at the SAFA Workshop on Impact of Basel II, held on September 8, 2014 in Dhaka, Bangladesh. By Sayyid Mansoob Hasan, FCMA - Chairman SAFA Task Force to develop a strategy to combat corruption in SAARC Region.
SAFA: South Asian Federation of Accountants
This presentation is the one stop point to learn about Basel Norms in the Banking
This is the most comprehensive presentation on Risk Management in Banks and Basel Norms. It presents in details the evolution of Basel Norms right form Pre Basel area till implementation of Basel III in 2019 along with factors and reason for shifting of Basel I to II and finally to III.
Links to Video's in the presentation
Risk Management in Banks
https://www.youtube.com/watch?v=fZ5_V4RW5pE
Tier 1 Capital
http://www.investopedia.com/terms/t/tier1capital.asp
Tier 2 Capital
http://www.investopedia.com/terms/t/tier2capital.asp
Basel I
http://www.investopedia.com/terms/b/basel_i.asp
Capital Adequacy Ratio
http://www.investopedia.com/terms/c/capitaladequacyratio.asp
Basel II
http://www.investopedia.com/video/play/what-basel-ii/?header_alt=c
Basel III
http://www.investopedia.com/terms/b/basell-iii.asp
RBI Governor - Raghuram G Rajan on the importance if Basel III regulations
https://youtu.be/EN27ZRe_28A
A set of international banking regulations put forth by the Basel Committee on Bank Supervision, which set out the minimum capital requirements of financial institutions with the goal of minimizing credit risk. Banks that operate internationally are required to maintain a minimum amount (8%) of capital based on a percent of risk-weighted assets.
Illiquid collateral and bank lending in euro area - Barthelemy et al. (2017)Benoit Nguyen
Presentation slides for the paper 'Illiquid collateral and bank lending during the Euro sovereign debt crisis'. Full paper downloadable here: https://publications.banque-france.fr/en/illiquid-collateral-and-bank-lending-during-european-sovereign-debt-crisis
This presentation was prepared as a briefing for ACCA's Financing Futures programme, which aims to extend a previous scenario analysis on the future of the financial services industry in order to find out how different types of businesses are likely to finance themselves in each of the scenarios developed therein.
The full report on the earlier scenario analysis, titled 'In Safe Hands?' can be accessed here: http://www.samiconsulting.co.uk/4insafehands.pdf
For more details on ACCA's Access to Finance thought leadership programme, see here: http://www.accaglobal.com/en/research-insights/access-finance.html
For more details on SAMI Consulting, see here: http://samiconsulting.co.uk/
For more details on L3F, see here: http://www.longfinance.net/lf-about.html#L3F
4. The global body for professional accountants
Basel III: the story so far
The post- crisis G-20 consensus:
• Failure of market discipline
• Too little / poor quality capital
• Too much leverage
• Too much short-term funding, reliance
on supposedly liquid markets
• Procyclical capital requirements
• Insufficient provision for Too Big To
Fail
5. The global body for professional accountants
Basel III: the story so far
• Sep 2009: G-20 in Pittsburgh call for
new capital, liquidity rules by end 2010
• Nov 2010: G-20 endorse the Basel
Committee’s Basel III proposals in
Seoul, seek to enact by end 2012
• Jul 2011: EC unveils CRD IV
proposals
• Mar 2013: CRD IV approved by
Council, EP. MS to transpose by 2014.
• Jan 2014: Deadline for transposition.
• 2019-22: Full implementation
6. The global body for professional accountants
Source: Moody’s (2012)
7. The global body for professional accountantsSource:
Schwarz-Petersen (2013)
% of Risk Weighted
Assets
% of Risk Weighted
Assets
8. The global body for professional accountants
Liquidity Coverage Ratio (LCR) (by 2015)
net liquidity outflows during a 30-day stress period
----------------------------------------------------------------------------
stock of ‘high quality’ liquid assets
Liquidity Coverage Ratio (LCR) (by 2015)
net liquidity outflows during a 30-day stress period
----------------------------------------------------------------------------
stock of ‘high quality’ liquid assets
Net Stable Funding Ratio (NSFR)
(2018, but in observation from 2012)
Net Stable Funding (customer deposits, long-term wholesale
funding and equity weighted by liquidity risk)
----------------------------------------------------------------------------
Assets (weighted by refinancing risk)
Net Stable Funding Ratio (NSFR)
(2018, but in observation from 2012)
Net Stable Funding (customer deposits, long-term wholesale
funding and equity weighted by liquidity risk)
----------------------------------------------------------------------------
Assets (weighted by refinancing risk)
Leverage Ratio (LCR) (tracked from 2013, disclosed from 2015)
Tier 1
----------------------------------------------------------------------------
Total on- and off- balance sheet assets
Leverage Ratio (LCR) (tracked from 2013, disclosed from 2015)
Tier 1
----------------------------------------------------------------------------
Total on- and off- balance sheet assets
9. The global body for professional accountants
The Macro Impact
Assessments.
10. The global body for professional accountants
Impact estimate
for Basel III Output loss Spreads incr.
MAG (Dec 2010) 0.05 <20bps
IMF (Sep 2012) 0.05 to 0.08 28bps
BCBS (Aug 2010) 0.08 66 bps
OECD (Feb 2011) 0.15 53 bps
EC (Jul 2011) 0.16 29 bps
IIF (Sep 2011) 0.70 364 bps
The Basel III IA boxed set: estimates
11. The global body for professional accountants
The Basel III IA boxed set: consensus
• Small output loss, peaks in ca. 9yrs
• Lending spreads will rise modestly
• Bank ROE will suffer
• Impact largest in Europe, Japan
• Incremental cost falls if banks learn
• Timing can determine impact
• Synergies between capital and liquidity
• Monetary policy can reduce the impact
• Benefits will outweigh costs
12. The global body for professional accountants
The Basel III IA boxed set: unknowns
• Counterfactuals
• Investors’ response and cost of equity
• Liquidity gaps, maturity matching costs
• Banks’ own capital targets
• Banks’ changing business models
• Monetary policy
• Viability of non-bank channels
• Impact on SMEs
13. The global body for professional accountants
The Basel III IA boxed set: underway
• Reviving securitisation (ACCA 2013)
• ‘Silo-ing’ collateral (Singh 2013)
• Financial disintegration, mostly
through liquidity rules
(Lehmann et al 2011)
14. The global body for professional accountants
The Micro Impact.
15. The global body for professional accountants
Improve data
quality and internal
reporting
Improve data
quality and internal
reporting
Improve loan-loss
provisions based
on better modelling
Improve loan-loss
provisions based
on better modelling
Redirect funds
away from trading
Redirect funds
away from trading
Attract retail / SME depositsAttract retail / SME deposits
Take loans off
balance sheet /
originate to
distribute
Take loans off
balance sheet /
originate to
distribute
Shorten
maturities
Shorten
maturities
Seek collateral
and guarantees
Seek collateral
and guarantees
Avoid SMEs, riskier
borrowers
Avoid SMEs, riskier
borrowers
Make greater use of
covenants
Make greater use of
covenants
Re-focus on
fee-based
services
Re-focus on
fee-based
services
Withdraw
capital-intensive
products
(overdrafts)
Withdraw
capital-intensive
products
(overdrafts)
Ration
capital
Ration
capital
Re-price creditRe-price credit
Impact on SME lendingImpact on SME lending
Cut costs / remunerationCut costs / remuneration
16. The global body for professional accountants
CRD IV –
What’s it good for?.
17. The global body for professional accountants
60% - 300%60% - 300%
of GDP: the typical cost
of a financial crisis
4.6%<3%4.6%<3%Probability of a financial crisis per year,
before and after Basel III
0?0?Change in the expected
severity of crises due to Basel III
Source: BCBS (Aug 2010)
18. The global body for professional accountants
Hey! This is a
bit like taxable
income?!
Source: Slovik (2012)
19. The global body for professional accountantsCapgemini (2010)
20. The global body for professional accountants
Source: Slovik (2012)
21. The global body for professional accountants
Source: BIS (2013)
Meanwhile,
on a balance
sheet near
you…
22. The global body for professional accountants
“We checked –
SMEs are riskier.”
Paraphrasing EBA (2012) (a lot)
23. The global body for professional accountants
Systemic risk
internalised by
no-one
Risk internalised
by counterparties
Risk internalised
by banks
• Cross-jurisdictional activity
• Size
• Substitutability
• Complexity
• Tail risk?
BIS (2011)
24. The global body for professional accountants
“[T]he traditional […]effects of capital become less
powerful […] and restrict “skin in the game” […]
when banks have access to tail risk projects.
The reason is that tail risk realizations can wipe
out almost any level of capital [hence] a part of the
losses is never borne by shareholders.”
Moreover, […] higher capital […] enables banks to
take higher tail risk without the fear of breaching
the minimal capital requirement in mildly bad (i.e.,
non-tail) project realizations.
Perotti et al (2011) (emphasis mine)
25. The global body for professional accountants
What is more dangerous in a
systemic way, that which is
perceived as risky or that which
is perceived as not risky?
Per Kurowski, Former Executive
Director at the World Bank
26. The global body for professional accountants
A REFRESHER
• Basel is still not a complete framework;
criticism is mainstream – but there’s
too much political capital invested
• Most impacts will be through changes
in banks’ business models, esp. if
banks are given too long to comply.
• Risk weights are deeply problematic,
as is the over-reliance on capital.