Text Text Basel Basel The Committee Basel Committee on Banking Supervision provides a forum for permanent cooperation on issues related to banking supervision, and seeks to promote and strengthen the methods of supervision and risk management globally. The Committee includes representatives from Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong, India, Indonesia, Italy, Japan, South Korea, Luxembourg, Mexico, Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom and the United States.
The group of governors and supervisors is the governing body of the Basel Committee and is composed of the governors of central banks and supervisors from member countries. The Committee Secretariat is based in the Bank for International Settlements in Basel, Switzerland.
The reform package proposed by the Committee will raise the minimum coefficient of heritage of high quality ( common equity) from 2 to 4.5 percent. In addition, banks should earmark a bearing heritage protection by 2.5 per cent ( capital conservation buffer) to support future periods of stress, which brings the total capital ratio first class (common equity + buffer) to 7 percent. These measures strengthen the company's most stringent definition agreed by the governors and supervisors in July, as well as raising capital requirements for trading, derivatives and securitization, which will be introduced at the end of 2011.
against each loan granted, thus increasing the wealth of top quality, that is, investments in securities with low or no risk (eg government bonds rated at the highest level), joining in this kind of "legal reserve" a sort of "special reserve" established by conservation capital buffer to be activated during periods of pre-crisis or at least of financial stress and / or speculative. So more and better provisions to avoid having bank balances derived from inflated and emptied by real values.
Jean-Claude Trichet, European Central Bank president and chairman of the group of governors and supervisors, said that "the agreements reached today represent an important strengthening of the parameters of global capital." He added that "their contribution to financial stability and long-term growth will be substantial. The transitional arrangements will put banks in a position to meet the new parameters without affecting the economic recovery. "
Nout Wellink, chairman of the Basel Committee on Banking Supervision and President of the Bank Netherlands, added that "the combined effect of the introduction of a much stricter definition of equity capital and new bearings put banks in a position to better withstand periods of economic and financial stress, thus supporting economic growth ' . Under an agreement reached, the minimum ratio of ordinary shares, the form of equity in a better position to absorb losses, will range from the current level of 2 percent (before application of regulatory adjustments) to 4.5 percent (after the application of more stringent adjustments). These new rules will be introduced gradually, by 1 January 2015.
The coefficient on the Tier ( Tier 1), which includes common equity and other financial instruments qualified based on strict criteria, will be increased at the same period of time, 4 to 6 percent.
The group of governors and supervisors also decided that the bearing of heritage protection beyond the minimum requirements set out must be set at 2.5 percent and must be consisting of common equity, after application of deductions. The purpose of bearing protection is to ensure that banks maintain a capital reserve to absorb losses over long periods of economic stress and financial. Banks are allowed to tap into the bearing during these periods of stress, but most of their capital ratio is close to the minimum requirement, the greater the restrictions on the distribution of profits. This framework will enhance the goal of giving the banks a solid governance and oversight, and provide an answer to the problem of competition ( collective action) that has prevented some banks to cut distributions of profits as discretionary bonuses and dividends high, despite the deteriorating capital position.
not forget that, while the ship pointed toward the cliffs and was preparing to sink, not decreased, rather increased the bonus awarded to the individual together with a super-manager generous dividend policy with shareholders. In fact, shareholders were the first who could control the budgets, through all the governance structures behind every public company, and its dividend policy, avoided this relentlessly to ongoing monitoring of accounts and investments. Members are satisfied members who do not ask, do not retreat, do not perform that action short of controlling that each Member Company must give to the social, especially minority.
A cyclical buffer between 0 and 2.5 per cent of ordinary shares or other types of capital to absorb fully losses will be applied taking into account national circumstances. The aim of cyclical buffer is to achieve the goal of protecting the broader macro-prudential banking sector from periods of excessive growth of credit mass. For each country, this bearing will come into force only when there is excessive growth of credit that will produce an accumulation of dangerous risk for the system. The cyclical buffer, once implemented, would be introduced as an extension of the gap of bearing protection.
In the hope of the drafters of the new agreement, the double back-up system should ensure that there will be more episodes like the ones we mentioned in chapter one, ie institutions that were based their budgets on paper that was worthless.
These capital requirements will add a coefficient of leverage that will provide additional protection for the risk-based measures described above. In July, the governors and supervisors agreed to experiment with a parallel Tier 1 leverage ratio of 3 percent.
According the Basel agreements currently in force , the bank's assets can be divided into two classes ( tier ): a "core class ( Tier 1 ) which is composed of equity and budgetary reserves from retained earnings after tax, and an "extra class" composed of additional elements. Are then deducted from the principal component elements such as goodwill.
To prevent the Tier 1 capital would be made less robust by the use of innovative tools created by gradually ba lthough the Basel Committee decided to limit its inclusion in Tier 1 to 15%. Excluding all of these innovative tools from Tier 1 capital, we obtain the so-called Tangible Common Equity (TCE) .
Comparing the Tier 1 to risk weighted assets, according to the criteria Basel II , you get the capital ratio Tier 1 , used as a standard measure of a bank's capital base.
The " Tier 1 capital" : solid easily represents the largest share available assets of the bank. The Tier1 Capital Ratio is the ratio between core capital of the bank and its risk-weighted assets. The " var" is the method to quantify the level of risk and measures the maximum potential loss that is expected to be generated on a specific timeframe.
The " core tier 1 " of about the Tier 1 Capital net of hybrid instruments. Ie net of financial instruments that may be issued by banks in the form of bonds, certificates of deposit and savings bonds or other securities and shall be reimbursed to applicants upon request of the issuer with the consent of the Bank of Italy.
Entering more detail in the Tier consists of:
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Useful earnings and reserves, net of ' start ,
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Shares ordinary and savings
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Preferred Securities: These are bonds perpetual non-callable prior to 10 years , for which payment may be withheld in the presence of negative trends in the management and dealing only with respect to ordinary shares and savings.
The Core Tier 1 is divided into Tier 1, the amount of which shall be not less than 85% the entire Tier 1, and consider steps 1 and 2, el ' Hybrid Tier 1, which contains only the preferred securities instead, in a maximum amount not exceeding 15% of Tier 1.
With a growing level of seniority, or with a greater guarantee for the investor, we find the Tier 2 , also separates into Upper Tier 2 capital, which houses the bonds for more than 10 years and used to cover losses resulting from the operation of the agency which do not permit the continuation of, and Lower Tier 2, comprising bonds of longer than 5 years.
Even with increasing seniority are the Tier 3 , consisting of bonds of longer than 2 years, can not be used to cover losses arising from the operation of the institution but does permit the suspension of payment of principal and interest in the event of a reduction Equity accounting below the limits law and on the initiative of Supervisors ( Bank of Italy, in our case ).
We may add that the Tier 1 must be at least 4% of weighted assets risk (based on parameters established by Basel 2 and then using the standard approach ol ' advanced internal rating-based foundation), the Tier 2 must not exceed 100% of Tier 1 and their sum should not be less than 8% of risk-weighted assets (RWA), which then represents the solvency ratio of the Bank. The Tier 3 should be more than 250% of Tier 1 to cover the market risks .
This clarification was NECE xed to show how regulatory capital is different from equity accounting for the various debt instruments issued by the bank There are inside and can be viewed as instruments "similar but not identical to capital," which are paid by the bank allows it to expand the uses. In the event that the regulatory capital was said sums being insufficient than expected use of the bank, established in the budget , it can be increased by reducing the dividends , issuing shares and / or preferred securities or by increasing the Tier 2.
The reason that banks must hold capital is defined as cope with unexpected losses, the largest of which comes from the deterioration of the creditworthiness of the counterparty than the height indicated on based of rating associated with it in the risk rating.
The assessments are therefore Tier experiments to test and verify, before they become binding and structural changes. Based on the results of the trial period, any final adjustment will be made in the first half of 2017, with the goal of landing on 1 January 2018 to a legislation Pillar 1 (minimum capital requirements ) based on analysis and appropriate calibrations.
The ultimate goal remains the major banks for keeping the system should have a capacity to absorb losses exceeding the parameters announced so far, and on this point, the Committee financial stability and the relevant working groups Basel Committee continue their work. The Basel Committee and the Committee for financial stability are developing an integrated approach to credit institutions important for the maintenance of the system, which could include a combination of higher capital requirements, capital 'possible' and debt bail-in (forms, the latter two, of debt securities automatically converted into shares in a deterioration of the accounts). Also continuing the work for the strengthening of liquidation. The Basel Committee has also recently published a consultation paper, Proposal to ENSURE the loss absorbency of regulatory capital at the point of non-viability (Proposal to ensure the ability of regulatory capital to absorb losses in a situation of non-sustainability). The governors and supervisors sign the aim of enhancing capacity to absorb losses of equity instruments Tier 1 and Tier 2 capital than ordinary shares.
Since the crisis, banks have already undertaken considerable efforts to strengthen their status sheet, trying to "clean up" the budgets of many toxic assets, but the road ahead is certainly greater than the distance traveled. But the preliminary results of the quantitative impact study conducted by the General Committee show that, as at the end of 2009, large banks will need a total, a significant share of additional capital to meet these new requirements. The smaller banks, which are of particular importance for the sector of small and medium-sized enterprises, in most cases, already satisfy them. The problem however is that many small banks through the interbank market, using the funds of major banks and therefore a new block system among the major groups, would have considerable implications for the liquidity of even small groups.
great deal of work to do then, and for this reason, the governors and supervisors agreed on the desirability of a transition phase for the implementation of new standards, which will help to ensure compliance with new and more stringent capital requirements by banks through a reasonable level of non-profit distribution and the raising of capital, without disregarding the activities to support the economy through the credit.
The intention, meritorious of applause, was then to give a good amount of time the big banks to settle their accounts, avoid the contract term and immediate ability to provide credit.
This is a step that must be fully understood in its fundamental essence. Bank means a solid bank that has a certain percentage of the provision of high quality in proportion to the money and supplies to the dangers. This percentage change means changing the proportion of investments (loans to customers) and the bank's total capital (the assets). It 'clear that the ratio change, means to touch one or the other or both to fit in the new measure. As the investment directly related to the investment risk (the rating) it is evident that the lower the risk that the bank runs, the more easily fall under the new rates, leaving the total capital and changing only the capital invested, ie by changing the way in which loans are disbursed. In practice, reduce risk, and only means to lend money only to those who fully viable, or at least, raise the bar that separates the lenders, by non-eligible. Put more directly, it means less money is borrowed and lent best, which is a further credit crunch. Worst when you could not choose, with thousands of companies in the throat with water for production and commercial crisis that shows no signs weakening, alternating positive months to months of regression of all economic indices. For this reason, the application will be tempered over a long period of time, confident that the banks do not choose the easier way of Pilate credit crunch, but instead give priority to the most arduous and complex road to Review their assets and the abolition of toxic assets in the same nest.
The transitional arrangements include:
• The national implementation by member countries will begin on 1 January 2013. Before that date, the member countries to translate these rules into national laws and regulations. At 1 January 2013, new banks must meet the following minimum requirements in order to risk-weighted assets (RWA):
- 3.5 percent primary capital / RWA;
- 4.5 percent of core capital (Tier 1) / RWA;
- 8.0 percent of total assets / RWA.
The minimum ratio of primary capital and the minimum ratio of core capital (Tier 1) will be introduced from 1 January 2013 and 1 January 2015. On 1 January 2013 the minimum primary capital ratio will rise from its current level of 2 percent to 3.5 percent. The minimum ratio of core capital (Tier 1) will rise from 4 to 4.5 percent. On 1 January 2014, banks must meet a minimum ratio of primary capital of 4 percent and a minimum ratio of core capital (Tier 1) of 5.5 percent. On 1 January 2015 must meet a minimum ratio of primary capital by 4.5 percent and a minimum ratio of core capital (Tier 1) of 6 percent. The total capital ratios will remain at its current level of 8 percent, and therefore do not require phasing. The difference between the total capital ratio of 8 per cent and the minimum ratio of core capital (Tier 1) can be covered by the supplementary capital (Tier 2) and other forms of capital.
• regulatory adjustments (eg prudential filters and deductions), including sums above the overall limit of 15 percent for investments in financial companies, mortgages and rights management activities produce subject to deferred tax will be fully deducted from ordinary shares on 1 June 2018.
• More specifically, normative adjustments from 20 percent the deduction from core capital on 1 January 2014, 40 per cent on 1 January 2015 , 60 per cent on 1 January 2016, 80 per cent on 1 January 2017 to reach 100 per cent on 1 January 2018. During this period of transition, not deducted from the remaining ordinary shares will remain subject to existing national regulations.
• The bearing of heritage protection will be phased in between 1 January 2016 and the end of 2018, entering fully into force on 1 January 2019. It will start on 1 January 2016 from a level of 0.625 per cent of risk weighted assets (RWA), increasing annually thereafter other 0.625 percentage points to reach the final level of 2.5 percent on the RWA 1 January 2019. Those countries that were be faced with excessive credit growth should consider the idea of \u200b\u200baccelerating the process of provisioning of bearing protection and bearing assets counter-cyclical. National authorities have the power to impose, at their discretion, shorter periods of transition, and should do so if and when the need arises.
• The banks already meet the minimum requirement during the transition period, but remain below the objective of 7 per cent of the assets of high quality ( minimum bearing more protection) should observe a policy of distribution of profits set to be prudent in order to achieve the goal of the protection pad in a reasonably short time.
• injections of capital from the public sector already in place will be exempt from new rules until January 1, 2018. The equity instruments that are no longer in the definition of core capital (Tier 1) or supplementary capital (Tier 2) will be phased out over 10 years from 1 January 2013. By setting as its basis the nominal amount of these instruments outstanding at January 1, 2013, from that date will be accepted no more than 90 per cent, and every year thereafter, this percentage will decrease by 10 points. In addition, instruments with an incentive to redeem them before the deadline will be phased out effective expiration date.
• The equity instruments that do not meet the criteria for falling within the definition of core capital (Tier 1) will be except on 1 January 2013. Will instead be phased out over the same period of time indicated above those instruments that meet the following three conditions: (1) not have been issued by a corporation, (2) be treated as equity on the basis of the parameters applicable accounting standards; (3) be recognized for all purposes as part of the core capital (Tier 1) in accordance with the applicable national banking legislation.
• Only equity instruments issued before the date of this press release will have access to the transition just described.
mechanisms for phasing in the ratio capital / loans were announced in the press release of the group of governors and supervisors of July 26, 2010. Therefore, the monitoring period will begin on 1 January 2011, the parallel period of application will begin on 1 January 2013 and will run until 1 January 2017 and the establishment of the relationship capital / loans and its members will begin on 1 January 2015. Based on the results of the period of parallel application, any final adjustment will be made in the first half of 2017 with the objective to land on 1 January 2018, legislation Pillar 1 (minimum capital requirements) based on analysis and appropriate calibrations.
After an observation period beginning in 2011, ' coverage ratio of liquid assets ( Liquidity coverage ratio) will be introduced on 1 January 2015. L ' stability index funds ( Net stable funding ratio) revised to pass a minimum benchmark by 1 January 2018. The Committee will carry out stringent quality control procedures to monitor the indices during the period of transition and will continue to examine the implications of these parameters for the financial markets, for the extension of credit for economic growth, tackling, where necessary, the unintended consequences .
