Basel III

from Wikipedia, the free encyclopedia

Basel III refers to the regulations of the Basel Committee of the Bank for International Settlements (BIS) for the regulation of banks . Since 2013, Basel III has been gradually replacing the previous rules called Basel II . The reason for the reform were weaknesses in the previous banking regulation, which were revealed by the financial crisis from 2007 onwards.

The preliminary final version of Basel III was published in December 2010, after which individual aspects were discussed. The reaction in the European Union carried out a new version of the Capital Requirements Directive (English Capital Requirements Directive , abbreviated CRD), which took effect on 1 January 2014. comprehensive transitional arrangements in force. In Switzerland, implementation began in 2013, where the capital ratios in particular are stricter.

Content of the reforms

The reforms put in the equity base and also with the liquidity regulations to.

capital

Increase in the quality, consistency and transparency of the equity base

The financial crisis showed that the global banking system had insufficiently high quality equity. Basel III was focused on what is known as core capital ( common equity ). It consists of public companies primarily comprised of the paid share capital and retained earnings .

The following measures are being taken to strengthen equity:

  • Innovative hybrid capital with repayment incentives, which under Basel II can amount to up to 15%, should no longer be accepted as class 1 capital .
  • Class 2 capital is to be harmonized, that is, national definitions are to give way to an international standard.
  • Class 3 capital is to be completely abolished.

Classes 1 to 3 (English tier ) are to be understood here according to the classification of a credit institution's own funds into core capital, supplementary capital and third- tier funds.

Overall, equity instruments that participate in the current loss are to be held in the future. Equity instruments that are only available in the event of liquidation (e.g. subordinated loans) will lose their importance. This would give the going concern basis (English going concern ) to the fore.

Improving risk coverage

Introduction of a leverage ratio

The leverage ratio (English leverage ratio , see also leverage ratio ) is an alternative to risk-weighted measurements. It sets the largely unweighted total assets in relation to regulatory equity. Limiting the leverage ratio is intended to protect the banking sector from excessive indebtedness and thus reduce the risk of destabilizing debt build-up. The debt ratio thus complements the equity standards under Pillar 1.

The definition of the limit for the leverage ratio has not yet been finalized. It should only apply as a binding minimum size from 2018. As a temporary measure, the balance sheet total will be limited to 33.3 times the total core capital (this corresponds almost exactly to a share of class 1 own funds of 3% of the balance sheet total ). As of 2015, the level of indebtedness of the institutions must be published as part of the Pillar 3 disclosure.

Reduce procyclicality and strengthen countercyclical buffers

Procyclical elements exacerbated the financial crisis. The accounting standards were particularly responsible for this . Due to the market value approaches to IFRS and other standards, the Institute had the balance sheet value of securities and other assets adjust to the falling stock market prices promptly. To make matters worse, according to IAS 39 , no value adjustments (“provisions for anticipated losses”) were allowed to be made before the default occurred , which would have at least partially shifted the resulting loss to earlier periods and thus weakened the effects.

For this reason, the Basel Committee supports the efforts of the International Accounting Standards Board to revise the rules on risk prevention . The new accounting standard IFRS 9 should regulate the details .

Basel III also addresses the problem of procyclicality through the introduction of a capital conservation buffer and a countercyclical equity buffer. These measures complement risk provisioning: while higher provisions absorb expected losses, the equity buffer absorbs unexpected losses.

The capital buffers are soft capital requirements. If a bank cannot meet the buffer requirements, it does not lose its banking license . However, it is limited in terms of the use of profit . As long as the buffers are not adhered to, banks will in future be obliged to withhold part of the profit or even the full profit in order to strengthen the capital base. In this case, only lower dividends can be paid. Even bonuses and stock repurchase programs are affected by these restrictions.

The capital conservation buffer should be 2.5%. The countercyclical buffer is set by the national supervisory authority for the banks in their country and should be between 0 and 2.5%. Changes in the amount will be announced 12 months in advance. This is intended to give the supervisory authority a further instrument to prevent economic overheating and excessive lending.

The capital requirements of the capital buffers are to be met with hard core capital (class 1).

Systemic risks and mutual business relationships

While procyclical effects intensified the financial crisis, the strong mutual business relationships (quote: “excessive networking”) among the systemically important banks contributed to the spread of the crisis. That is why the Basel Committee is working with the Financial Stability Board (FSB) to develop special requirements for systemically important banks. The work is based on the FSB's schedule.

The measures that have already been decided to lower systemic risks and reduce excessive networking include the following:

  • Capital incentives for banks to conduct OTC derivatives transactions through central counterparties
  • Higher capital requirements for trading and derivative transactions, as well as for securitisations and off-balance sheet transactions
  • Higher capital requirements for interbank transactions

liquidity

The financial crisis had shown that an adequate liquidity situation is crucial for the functioning of the markets and the banking sector. The worsening market situation suddenly made liquidity disappear, which brought the banking sector into refinancing problems. Central banks around the world were then forced to intervene with measures to provide liquidity.

In response to these weaknesses in the financial system, the Basel Committee developed basic principles for liquidity management and its monitoring. The committee also proposes two new quantitative minimum standards with different risk horizons.

Liquidity coverage ratio

The liquidity coverage ratio or liquidity ratio (LCR) is intended to ensure that global banks hold enough short-term liquidity in the event of a predefined stress scenario to be able to compensate for cash outflows for a month. To do this, the banks must keep liquid and freely available investments of high quality, which can also be sold in times of crisis. Ideally, they should be accepted as collateral by a central bank.

Structural liquidity ratio

The structural liquidity ratio (NSFR) requires banks to have long-term sources of funding, depending on the maturity profile of their claims. The NSFR is designed to prevent banks from relying too heavily on short-term funding sources.

Transition phase

The transition phase provides for the reforms to be implemented gradually. It is intended to enable banks to implement the Basel III reforms through retained profits and capital increases without jeopardizing their lending to the rest of the economy. The following table contains details on this (see Annex 4 of Basel III: A global regulatory framework for more resilient banks and banking systems ).

  2011 2012 2013 2014 2015 2016 2017 2018 1st January 2019
Leverage Ratio Monitoring phase Parallel operation   Takeover
according to pillar 1 		 
Common Equity Capital Ratio     3.5% 4.0% 4.5% 4.5% 4.5% 4.5% 4.5%
Capital conservation buffer     0.625% 1.25% 1.875% 2.5%
Minimum core capital plus capital conservation buffer     3.5% 4.0% 4.5% 5.125% 5.75% 6.375% 7.0%
Gradual build-up of deductions from Tier 1 core capital       20% 40% 60% 80% 100% 100%
Minimum total Tier 1 capital     4.5% 5.5% 6.0% 6.0% 6.0% 6.0% 6.0%
Minimum total capital (Tier 1 + 2)     8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
Minimum total capital plus capital conservation buffer     8.0% 8.0% 8.0% 8.625% 9.25% 9.875% 10.5%
Capital instruments that are no longer recognized as tier 1 or tier 2 capital   gradual reduction over a 10-year horizon
Countercyclical capital buffer
(individual definition by national supervisory authorities) 		    0% -
0.625% 		0% -
1.25% 		0% -
1.875% 		0% -
2.5%
                   
Liquidity Coverage Ratio (LCR) Observation phase Minimum standard
Net stable funding ratio Observation phase Minimum standard

Since political decision-making at EU level was delayed, the first year of the transition period has been dropped. Since it came into force on January 1, 2014, the values ​​planned for 2014 have therefore still applied.

classification

Aim of the reform

At the core of the reform is the goal of finding a balance between a more stable financial system and avoiding a credit crunch, as well as limiting and reducing the liability of the public sector and taxpayers.

According to a study, economists at the Bank for International Settlements assume only minor dampening effects on national economies.

criticism

As with Basel II, the planned new rules were viewed critically by the banks. In addition to the well-known fear of higher capital adequacy requirements ( equity ratios ), the main focus was on changes relating to the consolidation obligation of subsidiaries and the resulting consequences. Among other things, it was feared that the ten largest German banks would have to raise EUR 105 billion in additional equity and reduce loans worth up to EUR 1,000 billion. At first it was also controversial as to what should be recognized as equity in addition to ordinary shares and retained earnings. The German institutes are concerned with what are known as silent participations .

Some economists have critically discussed the extent to which concentrating on liquidity and capital adequacy regulations would help effectively. The IMF economist Raihan Zamil, for example, sees Basel III as an improvement, but more elementary is a solid selection of assets and valuation standards and, on the other hand, good risk management by the banks and assertive supervisory authorities are necessary.

The economists Martin Hellwig and Anat R. Admati criticize that the Basel III regulation prescribes capital ratios that are significantly too low. The two economists consider an equity ratio in relation to total bank assets of 20-30 percent to be necessary for the financial system to be safer and healthier. They also criticize the “Basel approach”, which prescribes capital requirements in relation to the risk-weighted assets . According to the two economists, in practice this would simply mean that banks would hardly hold any equity capital.

Basel III was controversial from the start with regard to the disadvantage of lending to SMEs . The German representative of the Basel Committee tried to reassure: "Studies indicate that the burden on the economy due to the introduction of Basel III will probably be kept within limits." And "Because of the new rules, our typical SME banks will not usually respond their task of providing the real economy with sufficient credit is failing ”, but there is still the risk of a credit crunch being exacerbated . Although the requirements for banks with regard to capital adequacy requirements for lending to SMEs were reduced in October 2012, it has become more difficult for smaller companies in particular to obtain credit. In this context, the demand of the German Council of Economic Experts (from November 2013 - during a recessionary economic trend in Europe) to restrict the granting of credit to small and medium-sized enterprises appears extremely explosive.

decisions

A decision-making committee meeting was convened for September 12, 2010.

At the G20 summit of the most important economies in Korea, Basel III was passed in principle. On December 16, 2010, the Basel Committee published a formulated text of the rules.

The implementation took place in Europe via an adjustment of the Capital Adequacy Directive (CRD). Essential provisions are contained in the Capital Adequacy Ordinance (CRR). This is an EU regulation that applies directly and therefore no longer needs to be implemented in national law. The amended Capital Adequacy Directive (“CRD IV”) and the Capital Adequacy Ordinance came into force on January 1, 2014 and largely replace the previous national provisions on capital adequacy requirements.

See also

Individual evidence

  1. ↑ Leverage Ratio. Deutsche Bundesbank, accessed on April 20, 2017 .
  2. ↑ Basel III: International framework for liquidity risk measurement, standards and monitoring (engl.)
  3. ↑ a b Basel III: A global regulatory framework for more resilient banks and banking systems (engl.); Retrieved December 16, 2010.
  4. ↑ a b Rolf Obertreis: Economy: Banks warn of stricter rules. In: Badische Zeitung. September 7, 2010, accessed June 20, 2011 .
  5. ↑ Peter Köhler, Robert Landgraf, Yasmin Osman, Hans Nagl: Basel III: Banks threaten burdens of up to 300 billion euros. In: Handelsblatt. January 29, 2010. Retrieved April 20, 2017 .
  6. ↑ Telepolis: Basel III is "nothing more than fool's gold" , May 31, 2011; Original article on Voxeu
  7. ↑ Anat Admati and Martin Hellwig: The Banker's New Clothes: What's Wrong with Banking and What to Do about It . Princeton University Press, Princeton, March 2013, ISBN 978-0-691-15684-2 , pp. 176-179; http://press.princeton.edu/
  8. ↑ Claudia Steegmüller, Philip Hoflehner, July 12, 2012: CHECK: Basel III - Curse or Blessing for SMEs? :
    “The potential effects of Basel III on small and medium-sized enterprises (SMEs) are discussed particularly controversially. The European Parliament - especially in the person of the rapporteur and Austrian MEP Othmar Karas - took the side of the SMEs and called for various easements: Reduction of the risk weight of SME loans by 30% (currently the risk weighting in the standard approach is 75% ) as well as increase of the threshold for the applicability of the lower risk weighting from EUR 1 million to EUR 2 million "
  9. ↑ Deutsche Bundesbank, Sabine Lautenschläger (Basler Committee / BIS ): Basel III and the SME sector: "Excessive capital requirements can lead to an uncontrolled reduction in bank assets and result in a credit crunch ." (Speech of March 29, 2012: Conclusion 2.) Retrieved February 18, 2013.
  10. ↑ Format, November 2, 2012: Basel III does not apply to SMEs ( Memento of the original from December 13, 2013 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. : "The new Basel III banking guidelines will not only force financial institutions to drastically increase their core capital - many experts also feared a noticeable credit crunch for small and medium-sized enterprises (SMEs)." @1@ 2Template: Webachiv / IABot / www.format.at
  11. ↑ Die Presse, April 17, 2013: Credit without a pinch :
    "Even if experts don't want to speak of a classic credit squeeze, it has become more difficult for smaller companies to borrow money."
  12. ↑ Handelsblatt, December 7, 2013: Spain's credit crunch: "No tengo dinero."
  13. ↑ Handelsblatt, December 9, 2013 Despite the low interest rate policy: Credit crunch in Italy worsens
    “The low interest rate policy of the ECB is not paying off for Italy at all so far. There is no sign of a plus in corporate loans. The ECB is currently trying to stimulate the economy with record-low interest rates. "
  14. ↑ Advisory Council on the Assessment of Overall Economic Development: Annual Report 2013/14: Against a backward-looking economic policy. (PDF) p. 218:
    “Small and medium-sized enterprises play an important economic role in many sectors. However, a warning should be given against economic policy measures that have the general goal of maintaining lending to small and medium-sized enterprises at the same level, because such measures could halt the necessary structural change . "
  15. ↑ CRD IV: New regulatory package for banks in force. Retrieved May 19, 2017 .

Web links