8/10/2019 b 3 Summary Table

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Basel Committee on Banking Supervision reforms - Basel IIIStrengthens microprudential regulation and supervision, and adds a macroprudential overlay that includes capital buffers.

Capital Liquidity

Pillar 1

Capital Containingleverage

Risk coverage Risk managementand supervision

Marketdiscipline

Global liquiditystandard andsupervisory monitoring

Pillar 2 Pillar 3

AllBanks

SIFIs

Quality and level of capitalGreater focus on common equity. Theminimum will be raised to 4.5% of risk-weighted assets, after deductions.

Capital loss absorption at the point ofnon-viabilityContractual terms of capital instrumentswill include a clause that allows atthe discretion of the relevant authority write-off or conversion to commonshares if the bank is judged to benon-viable. This principle increasesthe contribution of the private sector

to resolving future banking crises andthereby reduces moral hazard.

Capital conservation bufferComprising common equity of 2.5%of risk-weighted assets, bringing thetotal common equity standard to 7%.Constraint on a banks discretionarydistributions will be imposed whenbanks fall into the buffer range.

Countercyclical bufferImposed within a range of 0-2.5%comprising common equity, whenauthorities judge credit growth is

resulting in an unacceptable build up ofsystematic risk.

SecuritisationsStrengthens the capital treatment for certaincomplex securitisations. Requires banks to conductmore rigorous credit analyses of externally ratedsecuritisation exposures.

Trading bookSignicantly higher capital for trading andderivatives activities, as well as complexsecuritisations held in the trading book.Introduction of a stressed value-at-risk frameworkto help mitigate procyclicality. A capital chargefor incremental risk that estimates the default andmigration risks of unsecuritised credit products and

takes liquidity into account.

Counterparty credit riskSubstantial strengthening of the counterpartycredit risk framework. Includes: more stringentrequirements for measuring exposure; capitalincentives for banks to use central counterpartiesfor derivatives; and higher capital for inter-nancialsector exposures.

Bank exposures to central counterparties (CCPs)The Committee has proposed that trade exposuresto a qualifying CCP will receive a 2% risk weightand default fund exposures to a qualifying CCP willbe capitalised according to a risk-based method

that consistently and simply estimates risk arisingfrom such default fund.

Leverage ratioA non-risk-basedleverage ratiothat includesoff-balancesheet exposureswill serve as abackstop to therisk-based capitalrequirement. Alsohelps containsystem wide buildup of leverage.

Supplemental Pillar 2requirements.Address rm-widegovernance and riskmanagement; capturingthe risk of off-balancesheet exposuresand securitisationactivities; managingrisk concentrations;providing incentives forbanks to better managerisk and returns overthe long term; sound

compensation practices;valuation practices;stress testing; accountingstandards for nancialinstruments; corporategovernance; andsupervisory colleges.

Revised Pillar 3disclosuresrequirementsThe requirementsintroduced relateto securitisationexposures andsponsorship ofoff-balance sheetvehicles. Enhanceddisclosures onthe detail of thecomponentsof regulatory

capital and theirreconciliationto the reportedaccounts will berequired, includinga comprehensiveexplanation of howa bank calculates itsregulatory capitalratios.

Liquidity coverage ratioThe liquidity coverage ratio (LCR) willrequire banks to have sufcient high-quality liquid assets to withstand a30-day stressed funding scenario thatis specied by supervisors.

Net stable funding ratioThe net stable funding ratio (NSFR) is alonger-term structural ratio designed toaddress liquidity mismatches. It coversthe entire balance sheet and providesincentives for banks to use stablesources of funding.

Principles for Sound Liquidity RiskManagement and SupervisionThe Committees 2008 guidancePrinciples for Sound Liquidity RiskManagement and Supervisiontakesaccount of lessons learned during thecrisis and is based on a fundamentalreview of sound practices for managingliquidity risk in banking organisations.

Supervisory monitoringThe liquidity framework includes acommon set of monitoring metrics toassist supervisors in identifying andanalysing liquidity risk trends at both

the bank and system-wide level.

In addition to meeting the Basel III requirements, global systemically important nancial institutions (SIFIs) must have higher loss absorbency capacity to reectthe greater risks that they pose to the nancial system. The Committee has developed a methodology that includes both quantitative indicators and qualitativeelements to identify global systemically important banks (SIBs). The additional loss absorbency requirements are to be met with a progressive Common Equity Tier1 (CET1) capital requirement ranging from 1% to 2.5%, depending on a banks systemic importance. For banks facing the highest SIB surcharge, an additional lossabsorbency of 1% could be applied as a disincentive to increase materially their global systemic importance in the future. A consultative document was published incooperation with the Financial Stability Board, which is coordinating the overall set of measures to reduce the moral hazard posed by global SIFIs.