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 The
Basel Committee on Banking Supervision has issued a summary of the
current state of play with Basel II:
The Basel Committee on Banking Supervision
continues to make progress on its work to revise the international
accord on bank capital following the agenda established in Madrid
last October. At today’s (15th Jan) meeting in Basel, the
Committee reviewed the progress made on outstanding matters to meet
its mid-year 2004 objective and took decisions on key issues.
Public comments supported the Committee’s
proposal on credit-related losses
The Committee received 52 comment letters from institutions and
industry associations on its October 2003 proposal to revise the
capital treatment for expected and unexpected credit losses. Respondents
generally welcomed the Committee’s solution and agreed that
it will align regulatory capital more closely with the concepts
underpinning leading banks’ economic capital modelling processes.
The Committee believes that these comments will be instrumental
in strengthening the quality of the New Accord.
The Committee has decided on concrete modifications
necessary to implement the proposal made in October and will publish
them shortly. Moreover, the Committee agreed with industry comments
that the cap on the recognition of excess provisions should not
be based on Tier 2 capital components. Instead, it has decided to
convert the cap to a percentage (to be determined) of credit risk-weighted
assets.
Significant progress achieved on the
treatment of securitisation exposures
The Committee agreed to simplify the treatment of securitisation-related
exposures and align it more closely to industry practice in response
to public comments to the third consultative paper (CP3) on the
New Accord. Under the new treatment, banks will be allowed to derive
the risk weights on unrated exposures to asset-backed commercial
paper conduits (mainly liquidity facilities) by mapping their internal
risk assessments to external credit ratings; a less complex “Supervisory
Formula” will be available for determining capital for unrated
securitisation exposures; and both originating and investing banks
will be able to make equivalent use of the “Ratings-Based
Approach” (RBA) for rated securitisation exposures. Finally,
the Committee reviewed the calibration of the securitisation RBA
risk weights to ensure a closer alignment with the level of risk
inherent in the positions.
The main points are set out in Attachment A.
The Committee will also publish shortly a more detailed technical
note specifying the revisions to the securitisation proposals.
Furthermore, progress was made in the following
areas:
Advances on credit risk mitigation
techniques and related issues
The Committee has agreed to refine the rules for recognising credit
risk mitigation techniques in response to industry comments. The
Committee likewise recognises that the existing treatment of credit
risk mitigation must continue to evolve in order to reflect industry
practices, particularly as they relate to double default effects.
The Committee believes that recognition of these effects is necessary,
though it is essential to consider all of the implications, especially
those related to measurement, before a solution is decided. The
Committee will continue work on this topic with the intention of
finding a prudentially sound solution as promptly as possible prior
to implementation of the New Accord.
Alongside this work, the Committee plans to
undertake a review of counterparty credit risk and trading book
issues in coordination with the International Organisation of Securities
Commissions (IOSCO).
Pillar 2 implementation clarified
In response to recent discussions with banking organisations, the
Committee agreed on clarifications for implementing the supervisory
review of capital, or Pillar 2 of the New Accord. These clarifications
are appended as Attachment B.
Cooperation between home and host supervisors
Building on the principles published in August 2003 (High-Level
Principles for the Cross-border Implementation of the New Basel
Capital Accord), the Accord Implementation Group (AIG) of the Committee
is evaluating several actual case studies. This exercise is contributing
significantly to member authorities’ understanding on practical
aspects of cross-border implementation.
The Committee agreed on principles for the
cross-border implementation of the advanced measurement approaches
(AMA) for operational risk requirements. These principles balance
the need for the adequate capitalisation and sound risk management
of significant internationally active entities in cross-border banking
groups with the need for the practical application of the AMA within
these groups. The details of the proposal and related principles
will be published shortly.
Schedule
Working groups will make recommendations on the outstanding issues
at the Committee’s next meeting in May 2004, where the Committee
will additionally address the calibration of capital requirements.
Both efforts will allow the Committee to achieve its mid-year 2004
goal and ensure that the text will provide a solid basis for national
implementation processes and the industry’s preparations to
proceed. In accordance with the decisions announced in its October
2003 press release, the Committee will again evaluate the New Accord’s
calibration prior to implementation.
The Committee reaffirmed its objective to maintain
broadly the aggregate level of regulatory capital in the banking
system. It intends for the simpler approaches to produce overall
capital requirements that are broadly equivalent to those of the
existing rules while establishing incentives to adopt the more advanced
approaches. The Committee will moreover continue to work to ensure
that the Accord remains up to date with the best practices in risk
measurement and management.
For Attachments A and B visit: http://www.bis.org/press/p040115.htm
•Date:
16th January 2004 •Region: Worldwide •Type:
Article •Topic:
Op. risk
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