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Basel III Not Viewed as a "Burden" by Basel Committee

"I don't see Basel III as a burden - I see a compelling case to get it done" said Carolyn Rogers, Secretary General of the Basel Committee on Banking Supervision in the ECB Supervision Newsletter.  This quote came as a part of her comments responding to the question of whether the implementation of Basel III reforms in the aftermath of the pandemic was creating an extra burden on banks (and financial institutions). 

Rogers noted that a healthy, well-capitalised banking system can support an economy, even under severe stress. This is in contrast to what was learned during the great financial crisis, which was that weak banks not only create a financial crisis but they can also amplify the effects of that crisis on the real economy. 

WOCCU's concern with the statement, however, continues to be the indifference by the Basel Committee to smaller, less complex, community based financial institutions such as credit unions where clearly the Basel III reforms have increased complexity, regulatory burden, and in some instances the ability to serve rural or underserved markets.  

A complete copy of the interview can be viewed here.



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Basel

World Council Calls for Pandexit Flexibility from Basel Committee

The World Council of Credit Unions called for flexibility from the Basel Committee on Banking Supervision as the Committt considers the withdrawal of relief measures adopted during the COVID-19 pandemic. “It is important to allow national level regulators a great amount of flexibility to adjust to local conditions and economies when removing COVID-19 relief measures for credit unions.  Otherwise unnecessary shocks to their balance sheets could hinder their ability to serve communities trying to recover from the pandemic,” said WOCCU Sr. VP of Advocacy and General Counsel, Andrew Price.

In particular WOCCU urged the following actions by the Basel Committee that will benefit credit unions and set the framework for a measured and orderly withdrawal of relief measures:

  1. Provide clear direction to national-level supervisors that a measured and orderly withdrawal is appropriate, without establishing any firm timelines or deadlines.
  2. Allow national-level supervisors with ample discretion to adjust the withdrawal of relief based on local conditions and localized circumstances.
  3. Provide direction to national-level supervisors urging patience and leniency erring on the side of leaving a relief measure in place versus the risk of harm that may result from an early withdrawal of a relief measure.
  4. Allow supervisors to work with financial institutions on reasonable capital restoration plans that are appropriate for each institution while holding them harmless from any regulatory violation so long as the plan is being executed in good faith and absent any safety and soundness concern.

Additionally, World Council, in conjunction with FEDEAC, has issued “Financial Strategy to Mitigate the Impact of the COVID-19 Crisis COVID-19 Global Response Committee Technical Paper”[1]; which provides additional insight into the specific areas of concern for credit unions during the COVID-19 recovery period. This is a beneficial tool that credit unions utilize that is comprised of recommendations for strategic methods to manage the impact of the social and economic crisis generated by the COVID-19 pandemic

A full copy of World Council's letter can be viewed here.

 

[1] See, https://www.woccu.org/newsroom/covid19_resources?post_id=2156#2156.

 

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Basel

Basel Committee and World Bank Publish Survey on Proportionality

On July 30, 2021, the Basel Committee on Banking Supervision and the World Bank published a global survey of 90 authorities including bank supervisors and regulators entitled, Proportionality in bank regulation and supervision - a joint global survey. Although the Basel Committee acknowledges that proportionality encourages many benefits such as banking stability, reduction of compliance costs and regulatory burden, and utilization of “scarce supervisory resources”,  the Committee recognizes challenges related to the approach and implementation of proportionality such as “how to define the tiering criteria, how to maintain a level playing field and how to avoid opportunities for regulatory arbitrage” and “how to ensure financial positions are still comparable across banks and how to achieve net reduction in compliance costs and stress on supervisory resources and constraints.”

The Basel Committee touts that proportionality is ingrained in their work, specifically in the Committee’s Core Principles for Effective Banking Supervision (BCPs). World Council fully supports the Basel Committee and World Bank’s commitment to improving proportionality approaches, however, the related concerns and concepts within proportionality should apply widely to all relevant financial institutions such as credit unions and not just to banks. “We applaud the Basel Committee’s focus on understanding proportionality. However, we note the absence of responses that indicate a connection between proportionality and financial inclusion and providing access to responsible financial products. This should also be a significant driver for implementing proportionality by all supervisory authorities beyond the focus on supervisory resources”, says World Council Sr. Vice President of Advocacy, Andrew Price. 

“The key takeaways from the analysis of survey responses are:

  • Proportionate implementation is practised widely, across geographic regions and income groups. The use of proportionality is growing, as judged by respondents reporting future plans for proportionality. This is a work-in-progress but is also challenging for several jurisdictions.
  • Importantly, proportionality is acknowledged by respondents as promoting banking stability, reducing unnecessary regulatory burden and compliance costs, and making effective use of scarce supervisory resources. Consistent with this, a significant proportion of respondents (67%) are planning to implement or revise their proportionate approaches. Respondents have also expressed a clear preference for implementing a limited set of Committee standards.
  • However, challenges remain for jurisdictions that have adopted or are considering adopting proportionality. These challenges are during the design of proportionate approach (eg how to define the tiering criteria, how to maintain a level playing field and how to avoid opportunities for regulatory arbitrage) and after proportionality is implemented (eg how to ensure financial positions are still comparable across banks and how to achieve net reduction in compliance costs and stress on supervisory resources and constraints).
  • Implementation is motivated by factors other than risk profile or systemic relevance in some cases. For example, full or conservative set are implemented by jurisdictions seeking to obtain or retain correspondent banking relationships, meet the expectation of host jurisdiction supervisors or of rating agencies, regional pressure and peer pressure.”

More information on the survey can be found here.

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Basel

Basel Releases Report on Impact of Basel Reforms in Light of Pandemic

On July 7, 2021, the Basel Committee on Banking Supervision released its interim report,  Early lessons from the Covid-19 pandemic on the Basel reforms, as part of “the Committee's broader work programme to evaluate its post-global financial crisis reforms”.  The report supports the argument that regulatory reforms in response to the financial crisis have “absorbed the shock” brought about by the COVID-19 pandemic. The report essentially touts the success of the Basel III reforms maintaining that without them and other support measures by public authorities, the banking system would have suffered from greater stress.

  • “New report gives a preliminary assessment of the impact of implemented Basel reforms during the pandemic as part of a broader evaluation of their effectiveness.
  • Higher quality capital and liquidity levels required by the reforms helped banks absorb the significant impact of Covid-19 shock.
  • The banking system would have faced greater stress during this period had the reforms not been adopted and implemented.”

More information on the Basel Committee’s report is available here.

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Basel

Basel Committee Meets to Discuss Covid-19 Impact on Banks

On June 4, 2021, the Basel Committee on Banking Supervision met to cover the following issues related to the effect of Covid-19 on the current banking system:

  • Discussion on “Covid-19 risks to banking system, reviews provisioning practices and stresses importance of using capital and liquidity buffers.
  • Review of interim report evaluating impact of Basel framework during Covid-19.”
  • Agreement “to hold public consultation on prudential treatment of cryptoasset exposures.”

While the world is beginning to re-open, the Committee cautioned that banks and supervisors should still remain watchful for Covid-19 risks and vulnerabilities by using, among other things, “Basel III capital and liquidity buffers to absorb shocks and maintain lending to creditworthy households and businesses”, and strengthening operational resilience. The committee also evaluated post-crisis reforms by reviewing an interim report, which gave a preliminary assessment of the impact that Basel III standards had during the pandemic. Cryptoassets market developments were also covered during the meeting, as well as “next steps in developing its prudential treatment for banks' cryptoasset exposures.”

More information on the June 4th Basel Committee meeting is available here.

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Basel

Financial Stability Institute Issues Paper on Supervising Cryptoassets

The Financial Stability Institute issued its insights on supervising cryptoassets for anti-money laundering.  The paper noted that although certain cryptoassets have the potential to make payments and transfers more efficient, some of their features may heighten money laundering/terrorist financing (ML/TF) risks. In particular, the speed of transactions, global reach, potential for anonymous activity and the potential for transactions to take place without financial intermediaries make cryptoassets vulnerable to misuse. In fact, the scale of illicit use of cryptoassets is already significant, highlighting the importance of AML/CFT regulation and supervision, as well as law enforcement, in this area.

The paper discusses emerging regulatory approaches and supervisory practices and identifies policy priorities to address common challenges faced by regulatory authorities.  It also notes the efforts of hte Financial Action Task Force in this area to prevent the misuse of cryptoassts for ML/TF.

A copy of the paper can be viewed here.

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Basel

Basel Committee 2021-22 Work Programme and Strategic Priorities Released

On April 16, 2021, the Basel Committee on Bank Supervision published it’s 2021-22 work programme outlining the Committee’s strategic priorities and “reflects the outcome of a recent strategic review by the Committee to ensure that it continues to effectively promote global financial stability and strengthen the regulation, supervision and risk management practices of banks worldwide.” The key themes of the work programme cover Covid-19 resilience and recovery; horizon scanning, analysis of structural trends and mitigation of risks; and strengthening supervisory coordination and practices. The Committee’s oversight body, Group of Governors and Heads of Supervision (GHOS), will be focusing on these themes in the following ways:

  • Covid-19 resilience and recovery: Ongoing monitoring and assessment of risks and vulnerabilities to the global banking system; and additional policy and/or supervisory measures to mitigate these risks where relevant.
  • Horizon scanning and mitigation of medium-term risks and trends: Identifying, assessing and mitigating medium-term risks and structural trends to the banking system, including efforts towards the digitalisation of finance, climate-related financial risks, and the impact on banks' business models resulting from a "low-for-long" interest rate environment.
  • Strengthening supervisory coordination and practices: Pursue “initiatives aimed at strengthening supervisory coordination and practices, with a focus on the role of artificial intelligence / machine learning in banking and supervision, data and technology governance by banks, operational resilience, and the role of proportionality in bank regulation and supervision.”

More information on the Basel Committee’s 2021-22 work programme can be viewed here.

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Basel

Basel Committee Releases Two Reports on Climate-Related Financial Risks

On April 14, 2021, the Basel Committee on Banking Supervision published two reports on climate-related financial risks entitled,  Climate-related risk drivers and their transmission channels and Climate-related financial risks – measurement methodologies. According to the Bank for International Settlements’ press release:

  • The two reports discuss transmission channels of climate-related risks to the banking system, and the measurement methodologies of climate-related financial risks.
  • Climate risk drivers can be captured in traditional financial risk categories, but additional progress is needed to better estimate these risks.
  • The reports provide a conceptual foundation for the Basel Committee's next phase of work to identify potential gaps in the Basel Framework and consider measures to address them.

The report on Climate-related risk drivers and their transmission channels, discusses how climate-related risks come to fruition and how they affect banks and the banking system as a whole, while the report on Climate-related financial risks – measurement methodologies, covers “conceptual issues” surrounding climate-related financial risk measurements, as well as related bank and supervisory practices. There is still a way to go to identify and improve on risk mitigation and the Basel Committee is currently working on how to incorporate climate-related financial risk into their Basel Framework. “While a range of methodologies is currently in use or being developed, challenges remain in the estimation process, including data gaps and uncertainty associated with the long-term nature and unpredictability of climate change.” 

More information on the Basel Committee’s climate-related financial risk reports can be viewed here.

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Basel

Basel Oversight Group Discuss Global initiatives on Non-Bank Financial Intermediation

On March 31, 2021, the Basel Committee on Banking Supervision’s oversight body, the Group of Central Bank Governors and Heads of Supervision (GHOS), met to endorse the Basel Committee’s 2021-22 work programme and strategic priorities. The work programme “places high priority on the implementation and evaluation of previously agreed reforms, on assessing emerging risks and vulnerabilities, and increasing supervisory cooperation.” Part of that endorsement included and discussion surrounding global initiatives for non-bank financial intermediation (NBFI).

Regulators are taking notice that NBFI has a substantial impact on the market: banks and non-banks (such as like insurance companies, pension funds, investment funds, etc) are “interconnected through multiple channels”, and non-banks take up nearly half of the “global financial system”. Following the Financial Stability Board’s lead on tackling NBFI initiatives, the GHOS suggest taking a “holistic approach” when addressing areas needed to improve NBFI resilience.

More information on the GHOS meeting can be viewed here.

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Basel

World Council Advocated Proportionality Included in Basel Operational Resilience Guidance

The Basel Committee on Banking Supervision issued two guidance documents concerning Operational Resilience including the Principles of Operational Resilience and  Revisions to the Principles for the Sound Management of Operational Risk.  Both documents take a principled approach which allows for a risk-based and proportional application to any requirements implemented. 

Specifically, the Principles of Operational Resilience state “By building upon existing guidance and current practices, the Committee is issuing a principles-based approach to operational resilience that will help to ensure proportional implementation across banks of various size, complexity and geographical location.”

Further, the Principles for Sound Management of Operational Risk states “Thus, the review of the Principles is also the opportunity to stress that this model should be adequately and proportionally used by financial institutions to manage every kind of operational risk subcategory, including ICT risk” (emphasis added).

World Council advocated for the inclusion of this emphasis on proportionality in its comment letters to the Basel Committee filed during their consultation period (here and here).  WOCCU applauds the Basel Committee on this principles based and proportional approach which will help increase credit unions’ capacity to withstand disruptions due to severe events, but in a manner commensurate with their size, risk, and complexity.

A copy of the Principles of Operational Resilience can be viewed here; and the Principles for Sound Management of Operational Risk can be viewed here.

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Basel

Basel Provides WOCCU Advocated Relief for Non-Performing Loans

The Basel Committee on Banking Supervision amended its capital requirements for non-performing loan securtisations throuh a WOCCU advocated technical amendment Capital treatment of securitisations of non-performing loans. The rule closes a gap in the Basel framework by setting out prudent and risk sensitive capital requirements for non-performing loan securitisations.

The final rule permits banks to apply the external ratings-based approach to non-performing loans securitisation exposures, without the 100% risk weight floor. In addition, the rule refines the definition of discount incurred by the originating bank that factors in the capital requirements.

WOCCU commented on this proposal in June advocating for relief in connection with the securitisations of non-performing loans.  The rule should make it easier and cheaper for banks and credit unions to securtise non-performing loans which will be important as institutional stress increases as a result of COVID-19. 

A copy of the amendment can be viewed here.

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Basel

WOCCU Urges Proportionality in Basel Operational Resilience Principles

In two separate comment letters WOCCU urged proportionality and consideration of regulatory restraints for credit unions when implementing requirements for operational resilience and the management of operational risk. 

The two related consultations are being proposed by the Basel Committee on Banking Supervision in their  Consultative Document:  Principles for Operational Resilience and Consultative Document:  Revisions to the Principles for the Sound Management of Operational Risk.

In the letter, WOCCU noted that national-level prudential regulators are hesitant to fully proportionally tailor requirements for smaller, community-based financial institutions such as credit unions and therefore requested further emphasis on requiring consideration of proportional implementation of the standard.  WOCCU supports many of the principles surrounding operational resilience and the management of operational risk, but believes it should be done in a manner appropriate for credit unions.

A copy of the letters can be viewed here and here

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Basel

Basel Updates Workplan to Include COVID-19 Analysis

The Basel Committee on Banking Supervision (Committee) approved an updated workplan to evaluate its post crisis reforms to include lessons learned from the COVID-19 pandemic.  The Committee is currently consulting on a set of principles to enhance banks' operational resilience.

The Committee noted that the financial sector is on a more stable footing, thanks in part to the Basel III post-crisis reforms.  The reforms helped to make banks' capital and liquidity resources are greater than during the Great Financial Crisis of 2007-09, thus making them more resilient.

As part of this evaluation the Committee noted that it incorporate lessons learned from the Covid-19 crisis. The Committee will conduct a range of empirical analyses to evaluate:

  • the extent to which its post-crisis reforms have achieved their objectives;
  • the interactions among the Basel III reforms and other post-crisis reforms; and
  • whether there are gaps in the regulatory framework or significant unintended effects.
A copy of the press release can be viewed here.
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Basel

WOCCU Urges Further Relief from Basel on NPL Securitisations

WOCCU supported the Basel Committee on Banking Supervisions Technical Amendment: Capital Treatment of Securitsations of Non-Performing Loans (NPL), but urged it to go further and consider the amendments made in the European Union by the European Banking Authority in its opinion on the Capital Requirements Regulation (CRR) and the European Securitisation Regulation (ESR). Removing impediments to securitisations of NPLs should result in the freeing up regulatory capital reserves, which in turn will increase liquidity in the market. This will be important as the number of NPLs is likely to increase as the effects of the COVID-19 pandemic continue. WOCCU urged Basel to consider those items adopted in the EU on NPLs.

A copy of the comment letter can be found here.

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Basel

Basel Committee Consults on Operational Resilience

The Basel Committee on Banking Supervision (Basel Committee) issued a consultative document seeking input on its principles-based approach to improving operational resilience. The principles aim to strengthen the ability of financial institutions to withstand operational risk-related events which could cause significant operational failures or wide-scale disruptions in financial markets, such as pandemics, cyber incidents, technology failures or natural disasters.

While the principles-based approach endeavors to allow a proportional approach, WOCCU will encourage the Basel Committee to make sure this principle is clearly stated in the document together with clear direction to national-level prudential regulators to implement proportionality. 

A copy of the consultation can be viewed here

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Basel

WOCCU Supported Changes Adopted in Basel Credit Valuation Adjustment Risk Standard

The Basel Committee on Banking Supervisiony published an updated standard for the regulatory capital treatment of credit valuation adjustment (CVA) risk for derivatives and securities financing transactions.

The revisions for the regulatory capital treatment of CVA risk include:

  • recalibrated risk weights;
  • different treatment of certain client cleared derivatives; and
  • an overall recalibration of the standardised and basic approach.

WOCCU supported bringing the Credit Valuation Adjustment framework in alignment with the finalization of the market risk framework completed in 2019. 

A copy of the standard can be viewed here.

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Basel

FSB and Basel Committee Move to Transition Away from LIBOR by End of 2021

The Financial Stability Board (FSB) and Basel Committee on Banking Supervision (BCBS) published a report entitled, Supervisory issues associated with benchmark transition: Report to G20, which outlines supervisory recommendations LIBOR transition. The report concludes that, “Continued reliance of global financial markets on LIBOR poses clear risks to global financial stability. Transition away from LIBOR by end-2021 requires significant commitment and sustained effort from both financial and non-financial institutions (FIs and non-FIs) across many jurisdictions.” The report also includes surveys initiated by the FSB, the BCBS and the International Association of Insurance Supervisors (IAIS), developed to address remaining challenges to the benchmark transition.

The report outlined three recommendations that support LIBOR transition in jurisdictions with LIBOR exposures:

  • Identification of transition risks and challenges – authorities and standard-setting bodies to issue public statements to promote awareness and engage with trade associations, and authorities to undertake regular surveys of LIBOR exposure and to request updates from financial institutions.
  • Facilitation of LIBOR transition – authorities to establish a formal transition strategy supported by adequate resources and industry dialogue. Supervisory authorities should consider increasing the intensity of supervisory actions when the preparatory work of individual banks is unsatisfactory.
  • Coordination – authorities to promote industry-wide coordination, maintain dialogue on the adoption of fallback language, consider identifying legislative solutions, where necessary, and exchange information on best practices and challenges. The FSB and the standard-setting bodies will coordinate at the international level to identify key common metrics for monitoring transition progress.”

More information on the BSB and BCBS’ LIBOR transition report can be found here and here.

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Basel, Financial Stability Board

Basel AML/CFT Guidance includes WOCCU Recommendations on Proportionality/Financial Inclusion

The Basel Committee on Banking Supervision today issued the updated version of its guidelines on Sound management of risks related to money laundering and financing of terrorism, with guides on the interaction and cooperation between prudential and anti-money laundering and combatting the financing of terrorism (AML/CFT) supervisors.

The revisions set out principles and recommendations for information exchange and cooperation in relation to: (i) internal procedures or a bank/credit union; (ii) ongoing supervision; and (iii) enforcement actions. Also, possible mechanisms to facilitate such cooperation in the jurisdictional and international context are provided.  The guidelines are consistent and complimentary to those standards issued by the Financial Action Task Force (FATF).

WOCCU commented on this proposal in early 2020 urging reinforcement of the principles of proportionality and risk-based approaches to AML/CFT noting that regulatory burdens often fall disproportionately on credit unions often preventing access to responsible and affordable credit to underserved communities. 

The issuance by the Basel Committee includes specifically with respect to AML/CFT burdens should be "
proportional and risk-based, informed by banks’ own risk assessment of ML/FT risks."  Further, with respect to Member/Customer Due diligence the guidance notes that "It is important that the customer acceptance policy is not so restrictive that it results in a denial of access by the general public to banking services, especially for people who are financially or socially disadvantaged."  

WOCCU welcomes this guidance which should provide direction to national-level regulators to properly tailor AML/CFT requirements for credit unions which will in turn promote financial inclusion.

A copy of the newly issued guidance can be viewed here.

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Basel

Basel Committee Discusses COVID-19

The Basel Committee met to discuss the impact to date of the coronavirus disease (Covid-19) pandemic on the global banking system.

The Committee noted that the measures taken to date at the onset of the pandemic have helped mitigate some of the short-term financial stability risks. All members reaffirmed their expectation of full, timely and consistent implementation of all Basel III standards based on the revised timeline endorsed by the Group of Governors and Heads of Supervision.

The Committee noted that the pandemic has entered a new phase and that the impact and response vary across jurisdictions and the global economic outlook remains uncertain. Banks and supervisors must remain vigilant to the risks and vulnerabilities stemming from the pandemic to ensure that the global banking system remains financially and operationally resilient.

They noted that the Basel III Framework includes capital buffers designed to absorb losses in times of stress and to help maintain the flow of credit to the real economy.  Using these capital resources to support the real economy and absorb losses should take a priority during the crisis. 

Additionally, the Committee approved two measures that were commented on by WOCCU during the consultation process as follows:

  • final revisions to the credit valuation adjustment risk framework, which will be published in the coming weeks; and
  • a technical amendment on the prudential treatment of non-performing loan securitisations, which will be published for consultation next week.

Members also took stock of banks' progress on benchmark rate reforms and discussed potential regulatory implications stemming from banks' transition to alternative reference rates. The Committee places high priority on this issue and expects all banks to be adequately prepared to meet the transition timeline. 

The Committee also reviewed the responses received to its discussion paper on the prudential treatment for crypto-assets and approved a workplan for the next phase of the work, with a view to future consultation.

A copy of the press release can be viewed here.

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Basel

FAQs added to Basel Framework

The Basel Committee on Banking Supervision added to a number of Frequently Asked Questions (FAQs) to the Basel Framework to help answer  various common questions. The questions cover a range of issues including the reform of benchmark reference rates, liquidity, and clarifications relating to the standardized approach to operational risk. 

A copy of the FAQs can be viewed here.

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Basel

Basel Committee Releases Survey Regarding Climate Related Financial Risk Initiatives

The Basel Committee published their, “Climate-related financial risks: a survey on current initiatives”, summarizing members’ existing regulatory and supervisory initiatives on climate-related financial risk. The Basel Committee created the Task Force on Climate-related Financial Risks (TFCR) to improve global financial stability by performing “a stocktake of members’ existing regulatory and supervisory initiatives on climate-related financial risks;” initiating “a set of analytical reports on climate-related financial risks, including a literature review, and reports on the transmission channels of such risks to the banking system as well as on measurement methodologies”; and developing “effective supervisory practices in order to mitigate climate-related financial risks”.

The survey suggests that:

  • The majority of Basel Committee members consider it appropriate to address climate-related financial risks within their existing regulatory and supervisory frameworks;
  • an overwhelmingly large share of members have conducted research related to the measurement of climate-related financial risks, while a number of members identified operational challenges in assessing climate-related financial risks such as data availability, methodological challenges, and difficulties in mapping of transmission channels. A majority of the members have raised risk awareness with banks through different channels, and many banks are disclosing information related to climate-related financial risks to some extent; and
  • approximately two-fifths of members have issued, or are in process of issuing, more principles based guidance regarding climate-related financial risks. However, the majority of members have not factored, or have not yet considered factoring, the mitigation of such risks into the prudential capital framework.
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Basel

Basel Committee Issues WOCCU urged Covid-19 Regulatory Relief

The Basel Committee on Banking Supervision released technical guidance setting out additional measures to alleviate the impact of Covid-19 on the global banking system.

Specifically

  1. Expected credit loss accounting:  The Basel Committee notes that regarding the SICR assessment, relief measures to respond to the adverse economic impact of Covid-19 such as public guarantees or payment moratoriums, granted either by public authorities, or by banks on a voluntary basis, should not automatically result in exposures moving from a 12-month ECL to a lifetime ECL measurement. 
  2. Expected credit loss accounting transitional arrangements:  The Basel committee is allowing for the implementation of several transitional arrangements including applying exiting transitional arrangements even if those were not implemented initially.  Additionally, a 2 year period comprising the years 2020 and 2021, jurisdictions may allow banks to add-back up to 100% of the transitional adjustment amount to CET1. The “add-back” amount must then be phased-out on a straight line basis over the subsequent 3 years. 
  3. Capital treatment of non-performing loans, loans subject to moratorium, or past due:  The Basel Committee also provided treatment for a loan that might otherwise be considered troubled or in default  noting that jurisdictions can apply relief criterion for payment moratorium periods (public or granted by banks on a voluntary basis) relating to the Covid-19 outbreak such that they can be excluded by banks from the counting of days past due. Another criterion used is whether a bank considers that the borrower is unlikely to pay its credit obligations. The Committee has agreed that this assessment should be based on whether the borrower is unlikely be able to repay the rescheduled payments. 
  4. Non-centrally cleared derivatives: The Committee and the International Organization of Securities Commissions have agreed to defer the final two implementation phases of the framework for margin requirements for non-centrally cleared derivatives by one year.
WOCCU has urged this regulatory flexibility during the Covid-19 crisis.  A copy of the guidance can be viewed here.
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Basel

Basel Committee Delays Basel III Implementation to assist with COVID-19

The Basel Committee's oversight body, the Group of Central Bank Governors and Heads of Supervision (GHOS), provided relief to help financial institutions respond to the impact of Covid-19 on the global banking system by delaying deadlines for the implementation of the Basel III framework.

The following changes were adopted by the GHOS to the implementation timeline of the outstanding Basel III standards:

  • The implementation date of the Basel III standards finalised in December 2017 has been deferred by one year to 1 January 2023. The accompanying transitional arrangements for the output floor has also been extended by one year to 1 January 2028.
  • The implementation date of the revised market risk framework finalised in January 2019 has been deferred by one year to 1 January 2023.
  • The implementation date of the revised Pillar 3 disclosure requirements finalised in December 2018 has been deferred by one year to 1 January 2023.
A copy of the press release can be viewed here.
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Basel

Basel Committee Issues Covid-19 Statement

The Basel Committee on Banding Supervision (Basel Committee) is coordinating policy and supervisory response to the COVID-19 (Coronavirus) crisis and has issued a statement on their efforts.  The Basel Committee notes that member jurisdictions are pursuing a range of regulatory and supervisory measures to alleviate the financial stability impact of Covid-19. including measures targeting the provision of lending by banks to the real economy and facilitate banks' ability to absorb losses in an orderly manner.  The Committee notes that supervisory authorities also have additional flexibllity to undertake further measures if needed.  

In particular, the Basel III framework includes capital and liquidity buffers that are designed to be used in periods of stress. These include the capital conservation buffer and, by extension, the countercyclical capital buffer and buffers for systemically important banks. They also include banks' stock of high-quality liquid assets (HQLA). Using capital resources to support the real economy and absorb losses should take priority at present over discretionary distributions. HQLA stocks should be used to meet liquidity demands. Many supervisors are already encouraging banks to make use of these tools, which allow for flexibility in responding to the current circumstances. 

For credit unions, WOCCU is also urging national-level regulators to take note of this guidance and similarly allow for flexibility that will allow credit unions to serve their members during the crisis.  WOCCU's resource page can be viewed here.

A copy of the Basel Committee statement can be viewed here.

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Basel

World Council Urges Basel Committee to Consider Credit Union Difference in AML/CFT Guidance

The Basel Committee on Banking Supervision (Basel Committee) released a consultation requesting feedback on their Consultative Document: Introduction of Guidelines on Interaction and Cooperation Between Prudential and AML/CFT Supervision (Consultative Document). The Basel Committee’s goal is “[t[o] enhance the effectiveness of supervision on banks’ ML/FT risk management, the Committee proposes to provide further guidelines on interaction and cooperation between prudential supervision and anti-money laundering and countering financing of terrorism (AML/CFT) supervision.” World Council supported this objective, but urged the Basel Committee to not only consider the unique structure of credit unions when determining how to assess an institution’s money laundering and financing terrorism risks, but to give clear guidance to national-level regulators on how to appropriately and proportionately assess risk for credit unions. World Council further suggested that both prudential and AML/CFT supervisors outline a coordinated proportional approach to the enforcement, management, and assessment of credit unions based on their unique organization structure, as well as consideration for privacy concerns surrounding information sharing with supervisors, and confidentiality concerns with observers that may participate in colleges or other attendees participating on an ad hoc basis. WOCCU’s response to the Consultative Document can be found here.

Tags
Basel, Comment Letter