The Basel Committee on Banking Supervision reports that it has fleshed out many of the details of its regulatory reforms, and it issued a proposal for the introduction of countercyclical capital buffers.

The committee says that at its July 14-15 meeting it reviewed the design and overall calibration of the capital and liquidity frameworks, comments on its December 2009 consultation package, the results of its quantitative impact study, and its economic impact assessment. “Based on this review, the committee has developed concrete recommendations for completing its package of regulatory reforms,” it says.

The Group of Central Bank Governors and Heads of Supervision will review the committee’s progress and recommendations at its upcoming meeting later in July. And, the committee will present concrete recommendations for the definition of capital, the treatment of counterparty credit risk, the leverage ratio, the conservation buffer and the liquidity ratios to that group of policymakers.

The committee also reviewed, and continues to review, proposals for the role of contingent capital, which Canadian regulators have been touting. It says that it will soon issue a proposal for consultation on contingent capital.

On Friday, the Basel Committee issued for consultation a proposal on adopting countercyclical capital buffers, which would be imposed when, regulators believe excessive credit growth is leading to a build-up of system-wide risk. “This will help ensure the banking system has an adequate buffer of capital to protect it against future potential losses,” it says.

The committee said that it also continues to review specific proposals to address the risks of systemic banking institutions, including a “guided discretion” approach for a systemic capital surcharge, in combination with other regulatory and supervisory measures.

Nout Wellink, chairman of the Basel Committee and president of the Netherlands Bank, noted that, “the committee made significant progress at its meeting and remains fully on track to deliver a complete package of capital and liquidity reforms, including design and calibration, in time for the November 2010 G20 Leaders Summit in Seoul.”

Comments on the countercyclical buffer proposal are due by September 10.

IE