Basel Committee consults on liquidity risk measurement, standards and monitoring
17 December 2009
The Basel Committee consults on proposals to strengthen global capital and liquidity regulations. Issues include the Tier 1 capital base, capital buffers, capital requirements for counterparty credit risk, and minimum liquidity standards for internationally active banks.
The Committee proposes to raise the quality, consistency and transparency of the Tier 1 capital base. In addition, it is also harmonising the other elements of the capital structure.
It also proposes to strengthen the capital requirements for counterparty credit risk exposures arising from derivatives, repos and securities financing activities. These measures are also intended to increase incentives to move OTC derivative exposures to central counterparties and exchanges. The Committee will also promote further convergence in the measurement, management and supervision of operational risk.
A leverage ratio as a supplementary measure to the Basel II risk-based framework will also be introduced. To ensure comparability, the details of the leverage ratio will be harmonised internationally, fully adjusting for any remaining differences in accounting.
With regard to capital buffers, the Committee is promoting more forward-looking provisioning based on expected losses, which captures actual losses more transparently and is also less procyclical than the current "incurred loss" provisioning model.
Furthermore, Basel proposes introducing a global minimum liquidity standard for internationally active banks that includes a 30-day liquidity coverage ratio requirement underpinned by a longer-term structural liquidity ratio. It also includes a common set of monitoring metrics to assist supervisors in identifying and analysing liquidity risk trends at both the bank and system wide level.
Finally, the Committee is also reviewing the need for additional capital, liquidity or other supervisory measures to reduce the externalities created by systemically important institutions.
An impact assessment of the capital and liquidity standards will be carried out in the first half of 2010. In a number of proposals, the Committee is still considering different options, which will be included in the impact assessment.
“Decisions on the final proposals and their calibration will be made only after a thorough analysis of the impact assessment and the comments received on the consultative documents”, Nout Wellnik said.
The fully calibrated set of standards will be developed by the end of 2010 with the aim of implementation by end-2012. The Committee will put in place appropriate phase-in measures and grandfathering arrangements for a sufficiently long period to ensure a smooth transition to the new standards.
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