why basel iii? lessons learnt from the crisis

Transcription

Banking Control Commission
B.C.C.L.
BASEL III: PRACTICAL ASPECTS AND IMPLEMENTATION
WHY BASEL III?
LESSONS LEARNT FROM
THE CRISIS
Dr Amine Awad
Executive Board Member, Lebanon’s Banking Control Commission
Member of the Higher Banking Council
Coordinator of Basel III Implementation Task Force
Beirut, August 12, 2013
2
Race to Reform the Financial Sector
• After the Financial Crisis, many meetings took place
between September 2008 and the end of 2009, at the
highest level to enhance the Banking regulations:
- G7 & G20 Summits
- Financial Stability Board Meetings (that supersedes
the F.S.F.)
- Basel Committee for Banking Supervision Studies
- I.A.S.B., New Financial Reporting Standards
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4
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Reaction
There was many critics on Basel I and Basel II; some
voices were asking to replace Basel I and Basel II.
But after deep reflections (Financial and Political), on the
subject all parties found that the need is to complement
Basel II and Basel I.
Thus, Basel III born with the following goals:
* Strengthening the Numerator of the C.A.R.
With better Quality of Equity, additional Leverage Ratio and Capital Buffers
* Adding New Liquidity Standards (Intraday, Sh.T., Lg.T.)
* Introducing Macroprudential Components to the Regulatory Framework
* Adding Improved Governance Standards
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Basel III: A Global Approach
Macroprudential
Regulation
Basel III
Microprudential
Regulation
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A New Capital Framework
1.Raising the Quality, Consistency & Transparency of the Capital
base:
• 3 Capital Adequacy Ratios (C.A.R.) – Instead of one C.A.R.
• More emphasize on Common Equity
• No more Tier III
2. Enhancing Risk Coverage (To cover securitization instruments and
other off – B/S items)
3. Adding a Conservation Buffer to protect the Capital
4. Supplementing the risk-based Capital with a Leverage Ratio
5. Reducing Procyclicality by promoting a Countercyclical Buffer
6. Addressing Systemic Risk & Interconnectedness
(Special Treatment for SIB’s)
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2. A Global Liquidity Framework
• 1. New Principles for sound Liquidity Management
(Basel document September 2008)
• 2. Short Term, Liquidity Coverage Ratio (L.C.R.)
(Basel document January 2013)
• 3. Long Term, Net Stable Funding Ratio (N.S.F.R.)
(Basel document January 2013)
4. Intraday Liquidity Management (Basel document April
2013)
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Basel III Liquidity Framework
• Basel III introduces 2 Liquidity Ratios:
– Liquidity Coverage Ratio (LCR) (Gradual implementation 2015 to 2019):
(Sh.T.) 30 days time horizon
(Level 1 + Level 2) Stock of High Quality Liquid Assets
Total Net Cash Outflows for the next 30 calendar days
– Net Stable Funding Ratio (NSFR) (2018
≥ 60% (2015) to 100%(2019)
with Probable delay)
(Lg.T.) 1 year time horizon
Available Amount of Stable Funding
Required Amount of Stable Funding
≥ 100%
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Basel Transitional Arrangements
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3- New Qualitative Rules of Basel III
As the Capital should not be considered as a substitute for
addressing Inadequate Control, Governance, Risk
Management, Processes and Procedures, or wrong doings,
The new reform introduces:
-
New Risk Management Practices (including Stress Tests, as a forward looking tool)
-
New Emphasis on Risk Concentration (under Pillar II)
-
New rules on Corporate Governance (Boards’ Composition, Committees,…)
- New Rules on Compensation / Remuneration in the financial sector (to avoid cheating)
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-
-
-
-
3- New Qualitative Rules of Basel III
New Rules on Transparency and Consumer Protection (Financial Literacy, Dodd
Frank Act…)
New Rules on Compliance (FATF Rules, Amendments to the Patriot Act…)
New Rules to avoid speculation and misconduct in the Financial Sector and to
Separate Investment Banking from Commercial Banking (Volcker Rules, Directive
Européenne…)
New Rules on Supervisory Improvements:
* Supervisory Colleges
* New Basel Core Principles (Istanbul – October 2012)
P.S. Intensive FSAP Missions (by the IMF and the WB), including countries
for the first time :USA
New Accounting & Financial Reporting Standards (IFRS 8 and 9 and push to fully
implement IFRS 7)
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Basel III New Capital Minima
(3 C.A.R.)
Total Regulatory
Capital
8%
Tier 1 Capital
6%
Tier 2 capital
8%
Common Equity Tier 1
4.5%
Additional Tier 1
6%
Tier 2 Capital
8%
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BDL / BCCL In the Front Line
To avoid seeing such scenes and to protect
our Financial Sector Stability
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Common Equity Tier1 (CET1)
Additional Tier 1
Tier 2
%
%
Minimum Requirement
(2015)
Gradually since Dec.
2012 (until 2015)
Total Equity
9.5
8
TE
2%
2%
6
4.5
T1
CET1
0.5% Add. BDL
1.5%
1.5%
1% Add. BDL
4.5%
4.5%
Basel III
BDL
Tier 1
CET1
7.5
5.5
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Common Equity Tier1 (CET1)
Additional Tier 1
Minimum Requirement + Capital Conservation Buffer (2.5%)
Tier 2
%
%
(2019)
(2015)
Total Equity
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10.5
TE
2%
Tier 1
2%
8.5
7
T1
CET1
1.5%
1.5%
4.5% + 2.5%
10
0.5% Add. BDL
1% Add. BDL
CET1
8
4.5% + 2.5%
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Basel III
BDL
%
(Gradually till 2019)
%
(Gradually till 2019)
SIFI’S Buffer (0-2.5%)
15.5
SIFI’S Buffer (0-2.5%)
13
CCB (0-2.5%)
Systemically
Important Financial
institutions Buffer
10.5
8
6
17
TE
Conservation Buffer
(2.5%)
Countercyclical Capital
Buffer
14.5
CCB (0-2.5%)
12
Conservation Buffer
(2.5%)
TE
9.5
T1
7.5
Tier 2
T1
CET1
5.5
4.5
Tier 1
CET1
CETI
Basel III
BDL
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Basel III implementation calendar in Lebanon
(Phase-in arrangements)
(All dates are as of 31 December)
Minimum Common Equity (including CB): CETI
Minimum Tier 1 Equity (including CB): TIE
Minimum Total Equity (including CB) TE
2011
2012
2013
2014
2015
(a)
5%
6%
7%
8%
(b)
6.5%
7.5%
9%
10%
(c)
10%
10.5% 11.5%
2016
2017
2018
2019
12%
Countercyclical Capital Buffer
0% to 2.5%
DSIB’s Treatment
0% to 2.5%
Minimum Liquidity Ratio
LCR (gradually starting in 2015)
(a) As of 30/12/2013, the present Common Equity Tier 1 (CETI) ratio of Lebanese banking sector is 10.14%
(b) As of 30/12/2013, the present Tier 1 (TI) ratio of Lebanese banking sector is 13.46%
(c ) As of 30/12/2013, the present Total Equity (TE) ratio of Lebanese banking sector is 14.5%
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Message to Banks
• To Board of Directors:
• 1- Be more involved in overlooking the bank’s Strategy “Set the Tone at the Top”
• 2- Focus on ROAA and ROAE ( by a better Risk Management and a highly diversified Portfolio)
and reduce the Pay – Out Ratios. It is a way to focus on Quantity, Quality & Consistency of
Capital.
• To Banks’ Management:
•
3- Be involved in the ICAAP exercise as a personal initiative for a :
• * Better calculation of Economic Capital
• * Better Capital Planning & Budgeting
• BCC started its SREP missions in some banks (after having tested its ICAAM Methodology).
• 4- Do not neglect the importance of Stress Tests as a major tool of Forward Looking Risk
Management.
• 5- Avoid Silos. Work in a partnership between Risk, Business, Finance, Audit, Alco and
Compliance
• 6- Don’t count on Models and External Ratings only; count on your own analysis (Return to
Basics)
• 7- Invest more in resources:
• Systems (M.I.S.)
• Models
• But essentially in People
27
Thank You
E-Mail: [email protected]
28

why basel iii? lessons learnt from the crisis

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