1 Basel II Registrar of Banks Bank Supervision Department South African Reserve Bank 12 June 2007.
-
Upload
horace-cannon -
Category
Documents
-
view
217 -
download
0
Transcript of 1 Basel II Registrar of Banks Bank Supervision Department South African Reserve Bank 12 June 2007.
1
Basel IIBasel IIRegistrar of BanksRegistrar of Banks
Bank Supervision DepartmentBank Supervision DepartmentSouth African Reserve BankSouth African Reserve Bank
12 June 200712 June 2007
2
Agenda
Introduction Introduction
Strategic imperativesStrategic imperatives
Basel IBasel I
Basel IIBasel II
In a nutshellIn a nutshell
In South AfricaIn South Africa
BenefitsBenefits
ConclusionConclusion
3
SARB Mission
The reason for the Bank’s existence or primary purpose is the achievement and maintenance of price stability in
the South African economic system
BSD Mission
To promote the soundness of the banking system through the effective and efficient application of international
regulatory and supervisory standards
Introduction: Strategic imperatives
4
Introduction: Role of capital in banking
Capital is a buffer against losses, and gives Capital is a buffer against losses, and gives confidence and trust to depositors and rating confidence and trust to depositors and rating agenciesagencies
Determination of extent of required capital is thus Determination of extent of required capital is thus of vital importanceof vital importance
5
Introduction: Basel I - Strengths
Strengthens international banking system
Enhances competitiveness - level playing field
Provides a ‘capital discipline’
Constitutes an international standard
6
Introduction: Changes since Basel I
Globalisation Globalisation » Physical geography not an impediment to movement Physical geography not an impediment to movement
of moneyof money» Growth in cross-border trade, finance, investment Growth in cross-border trade, finance, investment
Technological advancesTechnological advances» Computing power and storageComputing power and storage» Networks and communicationsNetworks and communications
Financial engineering (development of highly Financial engineering (development of highly sophisticated and complex products)sophisticated and complex products)
The above were the causes that precipitated the need for change
7
Introduction: Outcomes of developments
RiskRisk» Evolving methodologies for managing/measuring riskEvolving methodologies for managing/measuring risk» New ways to un-bundle and transfer riskNew ways to un-bundle and transfer risk
• Financial derivative instrumentsFinancial derivative instruments• SecuritisationSecuritisation
Data - improvements in technology and Data - improvements in technology and telecommunications speed up collection and analysistelecommunications speed up collection and analysis
Operational risk management as new discipline Operational risk management as new discipline [Quantifying the risk of losses from failure of internal [Quantifying the risk of losses from failure of internal processes, people and systems as well as losses from processes, people and systems as well as losses from external disruptions]external disruptions]
•Cause: Barriers of time and geography have been lowered•Effect: Reduced life span of existing competitive strengths•Outcome: Tidal wave of structural change
8
Introduction: Basel I – Development areas
More forward looking approach as a result of a need to:
» deal with more complex risk profiles of banks
» promote sound risk management of all risks
» hold capital against not only credit, but also market and operational risk
» ensure that the framework is dynamic
» ensure that economic principles are complied with
» cater for both qualitative and quantitative aspects of sound risk management
» ensure appropriate disclosure
9
Agenda
IntroductionIntroduction
Rationale for Banking RegulationRationale for Banking Regulation
Strategic imperativesStrategic imperatives
Basel IBasel I
Basel IIBasel II
In a nutshellIn a nutshell
In South AfricaIn South Africa
BenefitsBenefits
ConclusionConclusion
10
Basel II - Objectives OverarchingOverarching
GeneralGeneral
Pillar IPillar I
Pillar IIPillar II
Pillar IIIPillar III
Strengthen financial systemStrengthen financial system Level playing fields & limit regulatory arbitrageLevel playing fields & limit regulatory arbitrage Foster sound risk management through the following Foster sound risk management through the following
incentivesincentives
» Regulatory capitalRegulatory capital• Risk sensitivity improvedRisk sensitivity improved• Better alignment of capital with riskBetter alignment of capital with risk• Menu of approaches offeredMenu of approaches offered• Operational risk coveredOperational risk covered• Maintain level of capitalisationMaintain level of capitalisation
» Economic capital vs RisksEconomic capital vs Risks» Supervisory ProcessesSupervisory Processes
» Market discipline by improved disclosureMarket discipline by improved disclosure
11
Basel II - Approaches
Basel II
Pillar 1
Minimum capital requirements
Pillar 2
Supervisory review process
Pillar 3
Market discipline
Risk weighted assets
Definition of capital
Core Capital
Supplementary capital
Credit risk Operational risk Market risk
Standardised Approach
Internal Ratings Based
Approach
Basic Indicator Approach
Alternative Standardised Approach
Advanced Measurement Approach
Models Approach
Standardised Appoach
Standardised Approach
12
Agenda
IntroductionIntroduction
Rationale for Banking RegulationRationale for Banking Regulation
Strategic imperativesStrategic imperatives
Basel IBasel I
Basel IIBasel II
In a nutshellIn a nutshell
In South AfricaIn South Africa
BenefitsBenefits
ConclusionConclusion
13
Basel II - Stages in implementation
Familiarisation Familiarisation with Basel IIwith Basel II
Establishment of a Establishment of a focused BII team in BSDfocused BII team in BSD
Establishment of Establishment of the AIF structurethe AIF structure
Gap analysis and Gap analysis and readiness assessmentreadiness assessment
Impact studiesImpact studies
Decision on Basel II Decision on Basel II ApproachesApproaches
Drafting of new Drafting of new legislationlegislation
Implementation Implementation plansplans
On-site visitsOn-site visitsInitial policy Initial policy
decisionsdecisions
““Home straight”Home straight”
06/2007 – 12/200706/2007 – 12/2007
TrainingTraining
WHERE WE STARTED:WHERE WE STARTED:DECISION IN 2002 TO IMPLEMENT B IIDECISION IN 2002 TO IMPLEMENT B II
GOAL :GOAL :Implementation of B Implementation of B II by 2008 - 01 - 01II by 2008 - 01 - 01
14
Basel II - Timelines
ImplementationImplementation
Impl
emen
tati
on –
All
app
roac
hes
(1 J
an)
Parliament
Legislation
2004 2005 2006 2008
Data Capturing & Storage – Mandatory Requirement Discuss Models with IRB Banks
June 2004 Issue B II
1999 - 2003
QIS 1 - QIS 3
CP1-CP3
Establish-ment of AIF
2007
Basel II - implemen-ted
Field tests
PlanningEvaluation and assessment
Discovery phase
Par
alle
l run
Solo run
Supervi-sory Process
QIS 4
QIS 5
QIS 5.5
Field tests
Regula-tions
Gap analysis
Readiness assessment
15
Basel II - Accord Implementation ForumBasel II - Accord Implementation Forum
Steering Committee
Risk Management Sub-Committee
Pillar 1 & 2
Disclosure Sub-Committee
Pillar 3
Economic Impact Sub-Committee
Regulatory Framework Sub-
Committee
Credit Risk Task Group
Operational Risk Task Group
Market Risk Task Group
Disclosure BA Return Task Group
General Education Task Group
Economic Study Task
Group
ALM Task Group
Capital Adequacy Task Group
Cross-border Task Group
Communication Strategy Task Group
Credit Risk BA Return Task Group
Securitisation BA Return Task Group
Credit Derivative Task Group
16
Basel II – AIF meetingsBasel II – AIF meetings
RepresentationRepresentation• BanksBanks
• SAICA (South African Institute of Chartered SAICA (South African Institute of Chartered Accountants)Accountants)
• National TreasuryNational Treasury
• SARBSARB
• BSDBSD
• The Banking AssociationThe Banking Association
More than 240 meetings were heldMore than 240 meetings were held Attendance: Average: 12 to 14 peopleAttendance: Average: 12 to 14 people
17
Basel II - Key milestones achieved
QIS 3,4 & 5 completed.
Proposed amendments to Banks Act » Approved by cabinet during February 2007
» Tabled in Parliament during April 2007
Proposed amendments to Regulations» Draft 4
• Approved by Standing Committee (February 2007)
• Published for public comment (30 April 2007)
» 2nd formal field tests by banks underway
18
Agenda
IntroductionIntroduction
Rationale for Banking RegulationRationale for Banking Regulation
Strategic imperativesStrategic imperatives
Basel IBasel I
Basel IIBasel II
In a nutshellIn a nutshell
In South AfricaIn South Africa
BenefitsBenefits
ConclusionsConclusions
19
Basel II – Benefits FlexibleFlexible
» Menu of approaches per riskMenu of approaches per risk» Supervisory reviewSupervisory review
Improved corporate governance, including improved risk Improved corporate governance, including improved risk managementmanagement
Improved capital management and stronger capital Improved capital management and stronger capital structuresstructures
Improved transparencyImproved transparency
Improved regulatory framework and supervisory policies, Improved regulatory framework and supervisory policies, practices and processespractices and processes
20
Agenda
IntroductionIntroduction
Rationale for Banking RegulationRationale for Banking Regulation
Strategic imperativesStrategic imperatives
Basel IBasel I
Basel IIBasel II
In a nutshellIn a nutshell
In South AfricaIn South Africa
BenefitsBenefits
ConclusionsConclusions
21
Conclusions
Overarching goal of Basel IIOverarching goal of Basel II
Promotion of improved financial sector stabilityPromotion of improved financial sector stability
Good progress facilitated by interaction between National Treasury, BSD, banks and external auditors
Focused team effort will ensure successful imlementation
1 January 2008 attainable
22
Thank you for your attentionThank you for your attention