Global banking regulators say that most countries have now adopted reforms to implement the new Basel III capital adequacy regime for big banks, but that the variability in assessing risk-weighted assets (RWAs) still needs to be addressed.
Ahead of the G20 Leaders’ Summit in St. Petersburg next week, the Basel Committee on Banking Supervision published its latest report on progress made in the implementation of Basel III regulatory reforms today. The report indicates that there has been real progress towards the adoption of Basel III. It notes that 25 of the 27 jurisdictions that comprise the Basel Committee have now issued the final set of Basel III based capital rules; and the other two, Indonesia and Turkey, have draft rules in place.
Additionally, a number of countries have begun to move towards introducing regulations for the liquidity and leverage ratios, as well as the requirements that apply to firms designated as global systemically important banks (G-SIBs) and domestic systemically important banks (D-SIBs), it says.
Moreover, it reports that internationally active banks are continuing to build capital, and “appear well placed” to meet the full set of fully phased-in minimum Basel III capital requirements ahead of the 2019 deadline. The report says that the aggregated capital shortfall of banks that still have capital ratios below the fully phased-in requirements continues to decrease, and that the shortfall is now well below half the aggregate annual profits of the industry (which totalled over €400 billion in 2012).
However, the committee stresses that banks and regulators “must remain particularly vigilant to actual and potential deterioration in banks’ asset quality in order to ensure further improvement in capital adequacy. Adjustments may also be required as the process of implementation of finalized capital regulations deepens further.”
One outstanding issues remains banks’ calculations of risk-weighted assets in both the banking and trading books, the report notes, after its review of this revealed material variations in the measurement of RWAs across banks. “The committee is actively considering possible policy reforms to improve the comparability of outcomes,” it says.
“There has been significant progress in many areas since the last update. Many committee member jurisdictions now have final Basel III regulations in place. Also, the committee’s regulatory consistency assessment programme is contributing to further convergence of national implementation of the Basel standards,” said Stefan Ingves, chairman of the Basel Committee and governor of Sveriges Riksbank.
“These are positive developments that will help build a resilient banking system and improve public confidence in regulatory ratios. Nevertheless, there is more to do. For example, with regard to risk weights, excessive variation across banks has been identified, and the Basel Committee is exploring policy options to reduce that.”