Five things to look out for in the Basel Committee’s press conference on Thursday 7 December has been saved
Five things to look out for in the Basel Committee’s press conference on Thursday 7 December
7 December 2017
The Governors and Heads of Supervision (GHOS) – the oversight body for the Basel Committee on Banking Supervision (BCBS) – has scheduled a press conference in Frankfurt for 16:00h GMT on Thursday, 7 December. This comes after more than a year of efforts by the BCBS to complete Basel III (often referred to in industry as “Basel IV”). Regulators have been close to an agreement for several months now, but final negotiations on calibrating the floor on a bank’s ability to use internal risk models to determine its capital requirements have proven difficult.
If, as seems likely, a deal is announced on Thursday, this will mark a significant milestone in the finalisation of the global post-crisis regulatory framework for banks, a huge achievement in its own right. It will not, however, be the last word.
To understand why this is the case, David Strachan, head of Deloitte’s EMEA Centre for Regulatory Strategy, points out five things that should be top-of-mind on Thursday:
1. The factors underlying the final deal:
“Most attention will focus on the calibration of the floor for how much lower a bank’s internal models can set its capital relative to the standardised approaches, potentially to be set at 72.5%. But the precise impact will depend on two other elements which have been much less discussed - where the BCBS comes out on the revised standardised approaches for credit risk and operational risk, in particular how risk-sensitive they are. And how conservative the BCBS is in the constraints it imposes on the use of internal model approaches. The BCBS's final standards in these areas will need close scrutiny to determine overall impact of the floor.”
2. An extended implementation period:
“The BCBS may choose to only gradually bring these new standards into force by setting an extended – five to six year – phased implementation period. This should give banks more time to adjust to any increases in capital brought by the new approaches, provided that the market does not push banks, particularly those perceived to have shortfalls under the final framework, to get there much more quickly.”
3. Commitments to implementation:
“Recent years have seen a growing list of instances where governments, legislators and regulators have appeared less willing to implement international regulatory standards without amendment than they were in the aftermath of the financial crisis. Statements from the BCBS and its members on the importance of a timely and faithful implementation of these standards will be important to watch. European regulators, in particular, are keen to have assurances that their US counterparts will implement existing elements of the Basel framework, including the Fundamental Review of the Trading Book and Net Stable Funding Ratio.”
4. Statements from EU policymakers:
“The implementation of the agreed-to Basel standards in the EU is likely to require new legislation in order to come into force. This will inevitably be a lengthy and complex process with many opportunities for EU legislators to amend these rules to reflect European specificities. We expect European governments and Members of the European Parliament to give important signals in the coming days about their willingness to transpose these new rules into EU law.”
5. What about sovereign risk?:
“Sovereign risk has been a long-outstanding element of the bank capital framework on which the BCBS is due to opine, and we know that many feel that it should do so soon. If a discussion paper or consultation is issued this week, we expect the BCBS to tread carefully and only proceed with changes very slowly. Divisions in the EU around the treatment of sovereign risk on bank balance sheets give us ample evidence that reaching an international regulatory consensus here will be difficult to do.”
Notes to editors
In this press release references to “Deloitte” are references to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”) a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see deloitte.com/about for a detailed description of the legal structure of DTTL and its member firms.
Deloitte LLP is a subsidiary of Deloitte NWE LLP, which is a member firm of
The information contained in this press release is correct at the time of going to press.
For more information, please visit www.deloitte.co.uk.
Member of Deloitte Touche Tohmatsu Limited.