The Revised Standardised Approach - World...
Transcript of The Revised Standardised Approach - World...
Regulatory Reform:
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Basel Committee 2008- 2015
(3Q):
79 Standards
52 Guidelines
15 Sound Practices
40 Implementation reports
37 Others
RWA Inconsistency - BB
4 Source: Basel Committee. Regulatory Consistency Assessment Programme. Analysis of risk-weighted assets for credit risk in the banking book. July 2013
RWA Inconsistency - TB
5 Source: Basel Committee. Regulatory Consistency Assessment Programme. Second report on risk-weighted assets for market risk in the trading book.
December 2013
Sensitivity, simplicity and comparability:
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Comparability
Confidence in RWA
Simplicity
Enforcement
Market discipline
Sensitivity
Incentives
Financial Innovation
RWA Approaches
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Pillar 1
Charges
Credit risk
Market risk
Operational risk
FAIRB
AIRB
Internal Models Standardized
Cred. Standardized
IMM Market Standardized
BIA
TFSA / ASAAMA
Why to revised SA?
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100% RW
Basel I Basel II
0%10%
20%30%
40%
50%80%
100%300%
900%
Risk
Sensitivity
Why to revised SA?
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Credit
Assessment
AAA to
AA-
A+ to A- BBB+ to
BB-
Bellow
BB-
Unrated
Risk Weight 20% 50% 100% 150% 100%
• Corporate Exposures (current framework)
- Risk sensitive ?
Why to revised SA?
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• Lack of risk sensitivity
Granularity
Unrated exposures
• Excessive use of ratings
mechanistic reliance
unrated exposures
• Miscalibration Out-of-date
relative terms
• Complexity lack of clarity
number of approaches
Key Design Questions
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What’s the
Scope?
What kind
of model?What does
standardized
mean?
Global
framework?
Wider
range of
banks
No
substitute
for CRA or
IRB
limited
subjectivity
Avoid
regulatory
fragmentation
The Revised Framework:
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• Sovereigns - not in the scope
• PSE – not in the scope
-National discretion: - PSE as sovereign
0% own sovereign
The Revised Framework:
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Banks - Policy Issues
• Investment Banks
• Non Basel III countries
• Country risk
The Revised Framework:
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Corporates
-Specialised Lending
- PF, OF, CF, IPRE : 120%
- ADC: 150%
- Equity / Subordinated debt : 300% or 400%
The Revised Framework:
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Corporates - Policy Issues
• Very diverse class- low explanatory power
- risk drivers should be different
• SMEs “penalization”
• Specialized lending too punitive
The Revised Framework:
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RRE- Policy Issues
• Risk drivers thresholds
• Country specific?
• Pro-ciclicality•Monitoring?
The Revised Framework:
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Comercial Real Estate
• Option A : -No mitigant
- 50% under conservative circumstances
• Option B:
The Revised Framework:
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Retail
• Risk weight 75%- Relevant asset class?
- Appropriate risk drivers?
• Objective Criteria- Exposure size: EUR $ 1 MM
- Diversification: 0,2%
The Revised Framework:
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Other Policy issues:
• Use of ratings
- No mechanistic reliance
- Limited role ?
• Calibration- current levels ?
The Revised Framework:
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Country Implications
•Markets are different
• Certainly a lot of room for improvement- risk sensitivity
- economic reality
• Calibration issues
The Revised Framework:
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Country Implications
• What is the best course of action for
jurisdictions that have not implemented BII?
- Case by case cost benefits analysis
The Revised Framework:
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Basel II Implementation
Benefits• Better capitalization?
• Risk sensitivity?
• Risk Management?
• Alignment with International Standards ?
Implementation costs• Substantial for Banks and supervisors.
- Particularly for Mkt risk
The Revised Framework:
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Country Implications
• BIII benefits are more tangible• Stronger definition of capital
• Liquidity requirement
• Macro dimension (buffers / SIBs)
• Most BIII features are independent from BII
• Some may be hard to implement• Need granular information (LCR)
• Institutional development (CCB)
The Revised Framework:
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Country Implications
If not advanced in the process…• Postpone BII standardized implementation
• Prioritize:
- BIII definition of Capital;
- DSIBs surcharge;
-New PIII disclosure requirements;
Depending on the stage of development- LCR (or a simplified version)
- CCB
- PII surcharges