21 The Principles for Implementing Basel II in Israel (Continued)
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Basel II as seen Basel II as seen by Israel’s by Israel’s Banking System Banking System Rony Hizkiyahu, Supervisor of Banks, Bank of Israel 30 January 2007 The Interdisciplinary Center, Herzliya, Caesaria Center
Transcript of 21 The Principles for Implementing Basel II in Israel (Continued)
Basel II as seen by Israel’s Basel II as seen by Israel’s Banking SystemBanking System
Rony Hizkiyahu, Supervisor of Banks, Bank of Israel
30 January 2007 The Interdisciplinary Center, Herzliya, Caesaria Center
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Basel II –The Vision
Strengthening the safety and soundness of the international banking system.
Creating standardization and reliability in the banking system at an international level.
Conversion to advanced methods accompanied by incentives.
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Basel II - Challenges Improvement of risk management by the banking
system (credit and market risks) including risks that were not addressed in the past (operational risk).
Management of organizational culture change with respect to risk (corporate governance).
Creation and maintenance of databases.
Management of credit risk due to small businesses through pools.
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Basel II - Implications Upgrading risk management and control systems.
Development of internal and external rating.
Effect on competition.
Effect on credit management of (large) corporations in non-bank financial services industries.
Upgrading small corporations’ management in order to meet the demands of the bank.
Increased efficiency of market activities as a result of increased disclosure.
Increased volatility of the business cycle => change in behavior patterns.
Costs
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Risk-Based Capital Ratio of the Large Banking Groups in Israel
0
2
4
6
8
10
12
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Total HaBeinleumi Mizrahi Discount Hapoalim Leumi
Precentage
1999 2000 2001 2002 2003 2004 2005
(10.7%)(9.8%)
(11.7%)
(10.6%)
(9.4%)
(11.6%)
The minimum required capital ratio since March
1999 (9%).
1999-2005
Source: Financial Statements
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Relative Surplus Capital Adequacy –
International Comparison
Relative Surplus Capital Adequacy 1
in Selected2 Banking Systems – International Comparison
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
Switzer
land
Holland
Greec
e
Austria
Finlan
d
South
Africa5
German
y
Canada
Portug
al
Belgium Spa
in
Median
Avera
ge
US 50
Sweden
Irelan
d
Britain
Norway
Israel
Denmark
New Zea
land
Austra
lia
Franc
eIta
ly
Precentage
1. Relativ e Surplus Capital Adequacy is calculated as a percentage of the total minimal required capital in each country when the minimal required capital ratio in all the countries is 8%. In Israel, where the minimum required capital ratio is 9%, and in Canada and South Af rica, where the minimum required capital ratio is 10%, Surplus Capital Adequacy was calculated f or ov er 8%. 2. In each country , the 10 largest banking groups were included except f or: the US whose data includes the 50 largest banking groups; Israel, Finland and South Af rica, whose data includes the 5 largest banking groups; and New Zealand whose data includes the 4 largest banking groups.
Source: Calculations of the Research Unit of Superv ision of the Banks on the basis of data f rom BankScope.
49%
34%
50
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Basel II – The Three PillarsPillar 1:
Minimum Capital
Requirements
Pillar 3:
Market Discipline
Pillar 2:
Supervisory Review
Process
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Basel II – Pillar 1 - Main Approaches to the Calculation of Minimum Capital Requirements
Credit Risk
• Standardised Approach (SA)
• Internal Ratings-Based Approach (IRB)• Foundation Internal Ratings-Based Approach (F IRB)
• Advanced Internal Ratings-Based Approach (A IRB)
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Basel II – Pillar 1 – Main Approaches to the Calculation of Minimum Capital Requirements
Operational Risk
• Basic Indicator Approach (BIA)
• Standardised Approach (SAOR)
• Advanced Measurement Approaches (AMA)
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Basel II – Implementation Prospects
in 49 Countries
Source:"Basel 2 at mid-2006: prospects for implementation and other recent development”, Cornford Andrew, Financial Markets Center, Geneva.
According to the publication there is no
implementation date14 countries
According to the publication there
is an implementation
date 35 countries
35 countries in which an implementation date has been set:AustraliaBahrainCanadaEU (19 countries)Hong KongIndiaLatvia Malaysia New Zealand PhilippinesSingaporeSouth Africa South KoreaSri LankaSwitzerlandTaiwan ThailandUS
14 countries in which an implementation date has not been set: AlbaniaArgentina Bermuda BulgariaChileChinaCroatiaIsraelJapan MauritiusPanamaRomania Turkey Uruguay
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Basel II Implementation Prospects in 35 Countries (according to publicized data)
Source:"Basel 2 at mid-2006: prospects for implementation and other recent development”, Cornford Andrew, Financial Markets Center, Geneva.
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Number of Countries
3 5 21 4 1 1
Year 2006 2007 20072008
2008 20082010
2009
35 Countries in which an Implementation Date has been Set
Implementation Date:
Source:"Basel 2 at mid-2006: prospects for implementation and other recent development”, Cornford Andrew, Financial Markets Center, Geneva.
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Number of Countries
1 3 24 2 3 2
Approach Advanced Only (US)
All the Approaches
Standard 2007
Advanced 2008
Standard with Parallel Calculation
Only Standard
No Specified Approach
35 Countries in which an Implementation Date has been Set
(Continued)Approaches adopted to calculate minimal capital requirements
Source:"Basel 2 at mid-2006: prospects for implementation and other recent development”, Cornford Andrew, Financial Markets Center, Geneva.
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Basel II – Implementation Prospects in 14 Countries (according to published data)
Source:"Basel 2 at mid-2006: prospects for implementation and other recent development”, Cornford Andrew, Financial Markets Center, Geneva.
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Basel II – 14 Countries in which no Implementation Date has been Set
Albania, Argentina, Bermuda, Bulgaria, Chile, China, Croatia
IsraelJapan
Mauritius, PanamaRomania, Turkey, Uruguay
Source:"Basel 2 at mid-2006: prospects for implementation and other recent development”, Cornford Andrew, Financial Markets Center, Geneva.Note: Countries in red will implement the standard approach and the advanced approach
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The Principles for Implementing Basel
IIin Israel
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The Principles for Implementing Basel II in Israel
1. The Supervisor of the Banks will adopt Basel II in its latest version (June 2006), as a proper conduct of banking business directive.
www.bis.org/publ/bcbs128.htm
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The Principles for Implementing Basel II in Israel (Continued)
2. The Supervisor’s directive for the implementation of Basel II will be based on a full and exact translation of the original in English.The directive will include as additional paragraphs in order to clarify those areas which require specific instructions and/or transitional instructions for implementation in Israel.
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The Principles for Implementing Basel II in Israel (Continued)
3. The Supervisor will set 2009 as the implementation date. From that year on, every banking corporation will implement all three pillars of Basel II, in all their aspects. In 2008, the banks will provide the data they received during the implementation of Basel II to the Supervisor.
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The Principles for Implementing Basel II in Israel (Continued)
4. A banking corporation that will be able to implement an advanced approach on the implementation date will receive all the necessary assistance from the Supervisor in order to fulfill the instructions of Basel II regarding this approach.
5. A banking corporation which will not be able to implement an advanced approach according to Basel II on the implementation date will have to implement an alternative approach.
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The Principles for Implementing Basel II in Israel (Continued)
6. The Supervisor will hold discussions and consultations with “Basel”, regulatory authorities and other entities abroad and in Israel concerning main issues in the adoption of Basel II in Israel.
7. The Supervisor will hold discussions and consultations with the banking corporations on all aspects of the implementation of Basel II, including those which according to Basel II require a specific directive of the Supervisor.
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The Principles for Implementing Basel II in Israel (Continued)
8. Up until the implementation date, the Supervisor will monitor and support each banking corporation’s preparations to implement Basel II.
9. The Supervisor will appoint a supreme steering committee for Basel II and will serve as its Chairman.
10. The Supervisor will initiate seminars and training activities on main issues related to the implementation of Basel II.
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The Principles for Implementing Basel II in Israel (Continued)
11. The Supervisor will publish, in stages, the directives for the implementation of Basel II.
At the end of the first quarter of 2007 (approximately), the Supervisor will publish an ANPR:
- A discussion draft regarding Pillar 3 of Basel II which addresses disclosure.
- A draft of a directive for the implementation of Basel II according to the standardised approach (credit risk, market risk and operational risk).
- A preliminary draft of a directive for the implementation of the complete Basel II directive, according to both the standardised approach and the advanced approaches.
- A Quantitative Impact Study (QIS) in order to organize the information on the plans and estimates of each banking corporation regarding the implementation of Basel II and its effects.
ANPR-Advanced Notice of Proposed Rulemaking
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The Principles for Implementing Basel II in Israel (Continued)
At the end of the third quarter of 2007 (approximately), the Supervisor will publish a full draft of the directive for the implementation of Basel II in all its aspects.
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Thank youThank you
