Upgrading the Basel Standards: from Basel III to Basel IV?
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Basel III: Post-Crisis Reforms
Basel III: Post-Crisis Reforms Implementation Timeline Focus: Capital Definitions, Capital Focus: Capital Requirements Buffers and Liquidity Requirements Basel lll 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 1 January 2022 Full implementation of: 1. Revised standardised approach for credit risk; 2. Revised IRB framework; 1 January 3. Revised CVA framework; 1 January 1 January 1 January 1 January 1 January 2018 4. Revised operational risk framework; 2027 5. Revised market risk framework (Fundamental Review of 2023 2024 2025 2026 Full implementation of Leverage Trading Book); and Output 6. Leverage Ratio (revised exposure definition). Output Output Output Output Ratio (Existing exposure floor: Transitional implementation floor: 55% floor: 60% floor: 65% floor: 70% definition) Output floor: 50% 72.5% Capital Ratios 0% - 2.5% 0% - 2.5% Countercyclical 0% - 2.5% 2.5% Buffer 2.5% Conservation 2.5% Buffer 8% 6% Minimum Capital 4.5% Requirement Core Equity Tier 1 (CET 1) Tier 1 (T1) Total Capital (Tier 1 + Tier 2) Standardised Approach for Credit Risk New Categories of Revisions to the Existing Standardised Approach Exposures • Exposures to Banks • Exposure to Covered Bonds Bank exposures will be risk-weighted based on either the External Credit Risk Assessment Approach (ECRA) or Standardised Credit Risk Rated covered bonds will be risk Assessment Approach (SCRA). Banks are to apply ECRA where regulators do allow the use of external ratings for regulatory purposes and weighted based on issue SCRA for regulators that don’t. specific rating while risk weights for unrated covered bonds will • Exposures to Multilateral Development Banks (MDBs) be inferred from the issuer’s For exposures that do not fulfil the eligibility criteria, risk weights are to be determined by either SCRA or ECRA. -
Basel IV Quantitative Impact Study on Cyprus Banks September 2020 1 Basel IV | Quantitative Impact Study on Cyprus Banks
Basel IV | Quantitative Impact Study on Cyprus Banks Basel IV Quantitative Impact Study on Cyprus Banks September 2020 1 Basel IV | Quantitative Impact Study on Cyprus Banks The aim of this paper is to provide an (especially SME) and retail customers, Summary overview of the changes in Credit Risk as well as project financing (as part of quantification under Basel IV, focusing on specialised lending). Banking-book credit risk requirements both Our most recent publication from a Standardised and Internal Ratings Analysing and understanding how the examines the impact of Basel IV Based (IRB) approach. reforms will affect the various portfolios of on Cyprus Banks. a bank and how these drive the decrease Our paper also provides guidance on the in required capital, is of paramount In particular, this article steps required to begin understanding importance to Cyprus Banks to ensure focuses on the updated Credit the impact of the reforms on required required capital is allocated appropriately Risk assessment framework. data, changes in processes, modelling and to each of the components of a bank. governance. Banks are therefore challenged to start Our analysis indicates that collecting new data as required by the Cyprus Banks are expected to For our analysis, we have performed reforms. a Quantitative Impact Study (QIS) to have a reduction in capital understand the impact across the different Separate to the Standardised approach requirements as a consequence portfolios of a typical Cyprus Bank, (SA) reforms, our paper considers the Basel of the revised risk-weights shedding a light on which components of IV changes under the IRB approach. -
Basel III Regulatory Capital Disclosures March 31, 2021
Huntington Bancshares Incorporated Basel III Regulatory Capital Disclosures March 31, 2021 Huntington Bancshares Incorporated Basel III Regulatory Capital Disclosures Glossary of Acronyms Acronym Description ACL Allowance for Credit Losses AFS Available For Sale ALLL Allowance for Loan and Lease Losses BHC Bank Holding Company BHC Act Bank Holding Company Act of 1956 C&I Commercial and Industrial CCAR Comprehensive Capital Analysis and Review CAP Capital Adequacy Process CECL Current Expected Credit Losses COVID-19 Coronavirus Disease 2019 CRE Commercial Real Estate EAD Exposure At Default Federal Reserve Board of Governors of the Federal Reserve System FRB Federal Reserve Board GAAP Generally Accepted Accounting Principles in the United States HTM Held to Maturity HVCRE High Volatility Commercial Real Estate ISDA International Swaps and Derivatives Association MD&A Management Discussion and Analysis MDB Multilateral Development Bank OTC Over-The-Counter PFE Potential Future Exposure PSE Public Sector Entity RWA Risk Weighted Assets SPE Special Purpose Entity SSFA Simplified Supervisory Formula Approach T-Bill Treasury Bill T-Bond Treasury Bond T-Note Treasury Note VIE Variable Interest Entity March 31, 2021 Page 2 Huntington Bancshares Incorporated Basel III Regulatory Capital Disclosures Introduction Company Overview Huntington Bancshares Incorporated ("Huntington" or "HBI") is a multi-state diversified regional bank holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Huntington has 15,449 average full-time equivalent employees. Through its bank subsidiary, The Huntington National Bank, HBI has over 150 years of serving the financial needs of our customers. Through its subsidiaries, including the Bank, Huntington provides full-service commercial and consumer banking services, mortgage banking services, automobile financing, recreational vehicle and marine financing, equipment financing, investment management, trust services, brokerage services, insurance products and services, and other financial products and services. -
Basel IV and Proportionality Initiatives
Basel IV and proportionality initiatives Upcoming changes to the Canadian capital and liquidity framework Introduction Enhancements to risk-based capital requirements and minimum Q1-2020. Attention is now focused on the implementation of liquidity and funding standards for Deposit-Taking Institutions final Basel III reforms, informally referred to as ‘Basel IV’, which (DTIs) are two foundational aspects of post-financial crisis introduces extensive revisions to the calculation of Risk-Weighted reforms introduced by Basel III. In Canada, initial Basel III reforms Assets (RWA) for Pillar 1 risks. OSFI’s proposed policy direction dedicated to raising the quality and quantity of capital have and implementation timelines for Basel IV are included in OSFI’s already been implemented. The domestic implementation of July 2018 discussion paper, Implementation of the final Basel III Basel III liquidity and funding standards will be complete when reforms in Canada. DTIs begin reporting the Net Stable Funding Ratio (NSFR) in Figure 1: Summary of basel capital, leverage and liquidity requirements Focus of CET1 Basel III: ratio Raising the Capital LCR, NSFR Leverage ratio quality and quantity of capital Focus of RWA Basel IV: Revising how risks are calculated Risk positions SA for Securitisation Operational SA for IRB for Market risk CVA risk Output measuring risk credit risk credit risk (FRTB) floor counterparty credit risk Source: Workshop Basel IV, KPMG International, 2018. While the Basel framework was originally designed to apply to which obligates DTIs to achieve compliance with updated large, internationally-active banks, domestic regulators including standards in short order. OSFI have applied Basel standards to a wider set of banks In this paper, we provide a consolidated overview of the for pragmatic reasons. -
Basel Iv Compliance
REPRINT risk & R&Ccompliance DATA PRIVACY INBASEL EUROPE IV COMPLIANCE REPRINTED FROM: RISK & COMPLIANCE MAGAZINE JAN-MARJAN-MAR 20202014 ISSUE rriskisk && && compliance compliance������������ JAN-MAR 2014 RC ��������������������������������� RC www.riskandcompliancemagazine.com Inside this issue: FEATURE The evolving role of the chief risk officer EXPERT FORUM Managing your company’s regulatory exposure ������������������ HOT TOPIC ������� Data privacy in Europe ������������������������� ���������������������� ������������ ���������������������� �������������������� ��������� ������������������������� ����������������������������� www.riskandcompliancemagazine.com VVisitisit the website to request a free copy of the full e-magazine To learn more about how SAS can help drive business evolution with intelligent Published by Financier Worldwide Ltd [email protected]@financierworldwide.com risk analytics, please visit sas.com/risk. © 20202014 Financier Worldwide Ltd. All rights reserved. risk & R&Ccompliance www.riskandcompliancemagazine.com 2 RISK & COMPLIANCE Jan-Mar 2020 www.riskandcompliancemagazine.com MINI-ROUNDTABLE MINI-ROUNDTABLE BASEL IV COMPLIANCE www.riskandcompliancemagazine.com RISK & COMPLIANCE Jan-Mar 2020 3 BASEL IV COMPLIANCE MINI-ROUNDTABLE PANEL EXPERTS Luís Barbosa Partner PwC T: +351 213 599 151 E: luis.fi[email protected] Luís Barbosa is currently leading PwC’s European network in the area of risk modelling & risk-weighted assets (RWA) and is responsible for the credit risk -
An Explanatory Note on the Basel II IRB Risk Weight Functions
Basel Committee on Banking Supervision An Explanatory Note on the Basel II IRB Risk Weight Functions July 2005 Requests for copies of publications, or for additions/changes to the mailing list, should be sent to: Bank for International Settlements Press & Communications CH-4002 Basel, Switzerland E-mail: [email protected] Fax: +41 61 280 9100 and +41 61 280 8100 © Bank for International Settlements 20054. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISBN print: 92-9131-673-3 Table of Contents 1. Introduction......................................................................................................................1 2. Economic foundations of the risk weight formulas ..........................................................1 3. Regulatory requirements to the Basel credit risk model..................................................4 4. Model specification..........................................................................................................4 4.1. The ASRF framework.............................................................................................4 4.2. Average and conditional PDs.................................................................................5 4.3. Loss Given Default.................................................................................................6 4.4. Expected versus Unexpected Losses ....................................................................7 4.5. Asset correlations...................................................................................................8 -
The Basel Games 2012
June 25, THE BASEL GAMES 2012 The Basel Games As the 2012 summer Olympic Games descends upon London, England, national pride and attention grows around the world in anticipation of an elite few chasing international glory. Organization of such an international affair takes a great deal of leadership and planning. In 1894, Baron Pierre de Coubertin founded the International Olympic Committee. The IOC is the governing body of the Olympics and has since developed the Olympic Charter that defines its structure and actions. A similar comparison can be made in regards to the development of The Basel Accords. Established in 1974, The Basel Committee on Banking Supervision, comprised of central bankers from around the world, has taken a similar role as the IOC, but its objective “is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide.” The elite participants of “The Basel Games” include banks with international presence. The Basel Accords themselves would be considered the Olympic Charter and its purpose was to create a consistent set of minimum capital requirements for banks to meet obligations and absorb unexpected losses. Although the BCBS does not have the power to enforce the accords, many countries have adopted their recommendations on banking regulations into law. To date there have been three accords developed. The Bronze Metal Our second runner up is Basel I, also known as the 1988 Basel Accord, which culminated as the result of the liquidation of the Herstatt Bank in 1974. With the development of technology and risk management techniques Basel I is considered obsolete by today’s standards. -
The Value of Diversity in Bank Credit Portfolios Basel Iv
BASEL IV REQUIRESIN BANKTHE SERIOUS CREDIT VALUE PORTFOLIOSOFU.S. DIVERSITY REVIEW REPRINTS OF THE QUARTERLY JOURNAL OF THE CLEARING HOUSE Q1 2018, VOLUME 6, ISSUE 1 AND DESIGNING A MORE EFFECTIVE AML/CFT SYSTEM MENDING THE RISK-BASED APPROACH HAS THE U.K. FOUND THE ANSWER TO AML INFORMATION SHARING? TECH’S ROLE IN IMPROVING THE AML SYSTEM AML REFORM: A SAFE HARBOR PROPOSAL THE VALUE OF DIVERSITY 2 BANKING PERSPECTIVES IN BANK CREDIT QUARTER 1 2018 PORTFOLIOS DIVERSITY CAN BE A POSITIVE FORCE FOR A HEALTHY CREDIT MARKET AND A SYSTEMICALLY HEALTHY FINANCIAL SYSTEM. BY DAVID CARRUTHERS AND MARK FAULKNER CREDIT BENCHMARK DIVERSITY – IN NATURE AND IN HUMAN ACTIVITY – is usually seen as a force for good. This view has strong support among credit market participants, especially the banks that mobilize and deploy capital; they believe that there are economic and systemic benefits resulting from banks taking PORTFOLIOS different views of risk. However, financial regulators are concerned about the role of this diversity in driving excess variability in risk-weighted assets. Regulators have argued for, and continue to impose, regulatory floors and ceilings to limit that variability; however, in some cases, these constraints could limit the scope for credit opinion diversity. Despite the differences in opinion, we find it encouraging that this important topic is now the subject of a constructive debate between the participants in the market and those who regulate it. D BANKING PERSPECTIVES QUARTER 1 2018 3 The Value of Diversity in Bank Credit Portfolios A broad and deep credit market is an essential element than 90% of the bank obligors are unrated by the major of a broad, deep, and robust economy, mobilizing idle nationally recognized statistical rating organizations.1 capital and facilitating maturity transformation. -
European Financial Congress1 in Relation to the Financial Stability Board’S Call for Public Feedback on the Effects of the Too-Big-To-Fail (TBTF) Reforms for Banks2
Answers of the European Financial Congress1 in relation to the Financial Stability Board’s call for public feedback on the effects of the too-big-to-fail (TBTF) reforms for banks2 Methodology for preparing the answers The answers were prepared in the following stages: Stage 1 A group of experts from the Polish financial sector were invited to participate in the survey. They were sent the FSB’s consultation questions. The experts were guaranteed anonymity. Stage 2 The European Financial Congress received responses from experts representing: commercial banks, regulatory bodies, consulting firms and the academia. Stage 3 The survey project coordinators from the European Financial Congress prepared a draft synthesis of opinions submitted by the experts. The draft synthesis was sent to the experts participating in the survey with the request to mark the passages that should be modified in the final position and to propose modifications and additions as well as marking the passages they did not agree with. Stage 4 On the basis of the responses received, the final version of the European Financial Congress’ answers was prepared. 1 European Financial Congress (EFC – www.efcongress.com). The EFC is a think tank whose purpose is to promote debate on how to ensure the financial security and sustainable development of the European Union and Poland. 2 https://www.fsb.org/wp-content/uploads/R230519.pdf https://www.fsb.org/wp-content/uploads/P230519.pdf Answers of the European Financial Congress 1. To what extent are TBTF reforms achieving their -
Basel 4 – the Effect on Swiss Banks How to Act Adequately March 2020 Brochure / Report Title Goes Here | Section Title Goes Here
Basel 4 – the effect on Swiss Banks How to act adequately March 2020 Brochure / report title goes here | Section title goes here 02 Basel 4 – the effect on Swiss Banks |How to act adequately Summary The aim of this paper is to (LTV) metric is needed for both This article examines the impact understand the drivers of the RWA standardized and AIRB banks. of the Basel 4 post-crisis reforms impacts across the different Furthermore, proper documentation (published in December 2017) portfolios of a typical Swiss bank, on this portfolio is necessary for for a typical Swiss retail bank. and hence shed light on which components of the bank will be appropriate allocation of capital. In particular, this article will most affected. This paper further Other portfolios that require focus on the updated credit risk gives guidance on first steps to take further attention are: exposures to framework, as well as the impact to start understanding the impact corporates (especially SME), project of the newly introduced output of the reforms on required data, financing (as part of specialised lending) and retail exposures to floor for banks using internal changes in processes, changes SME. For certain portfolios, the risk models. Our assessment indicates in modelling and the required governance, and how Swiss banks weights used in the standardised that Swiss banks with internal could commence implementation of approach depend on external rates, models are expected to have an these reforms. which require a due diligence process increase in capital requirements from the bank. Due to the capital as a consequence of the output As previously mentioned, the focus floor, AIRB banks will also have to get a deeper understanding of the floor. -
Bank Capital Requirements
December 19, 2017 Bank Capital Requirements Basel Committee Releases Standards to Finalize Basel III Framework SUMMARY On December 7, 2017, the Basel Committee on Banking Supervision released standards to finalize its Basel III capital framework (commonly referred to as “Basel IV”).1 The Basel III capital framework was published in December 2010,2 and, since then, has been supplemented and revised by numerous standards published prior to December 2017.3 Although the Basel III capital framework primarily addressed the components of regulatory capital (i.e., the numerator of capital ratios) and the calibration of minimum required capital ratios (i.e., the minimum percentages), Basel IV largely focuses on the denominator in capital ratios—in particular, risk-weighted assets (“RWAs”) for purposes of the risk-based capital ratios. The Basel Committee describes Basel IV as finalizing post-crisis regulatory reforms for capital adequacy, but it is likely that the international framework for the regulation of bank capital will continue to evolve. Indeed, Basel IV and the Basel Committee’s accompanying materials note that the Basel Committee will (i) review the calibration of the revised market risk framework prior to its implementation on January 1, 2022,4 (ii) monitor the impact of leverage capital requirements on central clearing of derivatives and, by December 2019, conclude a review of the impact of leverage capital requirements on the provision of clearing services and resilience of central clearing,5 and (iii) review the treatment of credit -
Basel IV Rules
Collective Intelligence for Global Finance Basel IV Rules: The Impact Upon Capital Markets and the Securities Finance Industry July 2020 Basel IV Rules: The Impact Upon Capital Markets and the Securities Finance Industry Executive Summary The impact of the Covid-19 crisis to the global financial network has accelerated the downward transition of creditworthiness at a rate comparable to the 2008 Global Financial Crisis. The forthcoming Basel IV regulations will impact the global capital markets and have potentially serious consequences for the securities finance industry. Under Basel IV, banks’ internal ratings models will be set aside and unrated counterparts will carry a 100% RWA. Tens of thousands of high-quality but unrated obligors will attract this 100% risk weight. It is estimated that applying data from an external credit assessment institution (“ECAI”) could reduce the RWA dramatically, and produce a cost saving of 2 million USD per notional 1 billion USD of exposure. A potential solution to this dilemma is the regulatory-approved use of alternative sources of credit data to supplement the gaps in the “issuer paid” credit rating agency model. In 1966 Robert F. Kennedy made a speech about the About Credit Benchmark importance of individual action to drive necessary change. Credit Benchmark produces a comprehensive view of In the speech he said “Like it or not, we live in interesting credit risk by creating Consensus ratings and analytics times. They are times of danger and uncertainty; but they are on the credit quality of companies, financial also the most creative of any time in the history of mankind.” institutions, sovereigns and funds.