12 November 2014

BCBS: Reports by the Basel Committee on measures to reduce risk-weighted asset variability and on Basel III implementation

The Basel Committee on Banking Supervision (BCBS) has published two documents - a report on measures to reduce excessive variability in banks' regulatory capital ratios; and an update on the implementation of Basel III standards since the 2013 progress report to G20 Leaders. 

Studies conducted by the Basel Committee on banks' risk-weighting of assets confirmed that there are material variances in banks' regulatory capital ratios that arise from factors other than differences in the riskiness of banks' portfolios. These variances undermine confidence in capital ratios. In response, the Committee initiated a number of policy and supervisory actions to address excessive variability in risk-weighted assets that are based on a bank's internal models.

One such measure is to revise the Basel capital framework's standardised measurement approaches (ie the non-internal model-based approaches). Once finalised, the revised standardised approaches will form the basis for a capital floor, which will ensure that internal model-based capital requirements do not fall below prudent levels. In October 2014 the Committee proposed revisions to the standardised approach for measuring operational risk capital and it expects to publish by year-end proposed revisions to the standardised approach for credit risk as well as a proposed capital floor.

Drawing from its risk-weighted asset studies, the Committee is also developing specific policy proposals to reduce excessive variability arising from banks' risk modelling practices. The modifications under consideration will narrow the modelling choices available to banks, particularly in areas which by their nature are not amenable to modelling, and will serve to increase consistency and reduce complexity.

In addition, the Committee is assessing whether a considerable simplification of the Advanced Measurement Approach (AMA) to operational risk is needed. The Committee intends to finalise this work programme by end-2015.

The progress report on Basel III implementation notes that the work on implementation is fostering harmonisation of capital regulations across member jurisdictions. The report also notes that all Committee members have implemented risk-based capital regulations and that efforts are now under way to adopt Basel III regulations for liquidity and leverage ratios as well as for global systemically important banks (G-SIBs) and domestic systemically important banks (D-SIBs). Separately, the Committee has today also published a report on the use of national discretions in implementing Basel standards, which is aimed at fostering transparency on the differences in implementation across member jurisdictions.

Summing up, Stefan Ingves, Chairman of the Basel Committee and Governor of Sveriges Riksbank, said: "Informed by the Committee's monitoring of the Basel standards, we are targeting our policy responses at excessive variability in banks' internal measures of risk-weighted assets."

Press release

Report on measures to reduce excessive variability in banks' regulatory capital ratios

Implementation of Basel III standards

© BCBS (BIS)