Basel ii News, October 2009 - from the Basel ii Compliance Professionals Association (BCPA)

Oct. 27, 2009 - PRLog -- The Basel ii Compliance Professionals Association (BCPA) is the largest association of Basel ii professionals in the world, with more than 4,800 members (October 2009).

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Basel ii News, October 2009

Dear Members,

This month we will discuss an important report from the Financial Stability Board (FSB) that directly affects the Basel ii implementation projects around the world.

Some really important changes:

The predominant form of Tier 1 capital must be common shares and retained earnings.

The Basel Committee on Banking Supervision is working urgently to build stronger buffers into the financial system, covering capital, liquidity and provisioning, that will raise defences and constrain the procyclical build-up of leverage in the system.

New rules will be set out by end-2009, calibrated in 2010 and phased in as financial conditions improve and economic recovery is assured.

The level and quality of minimum capital requirements will increase substantially over time.

The Basel Committee will issue by the end of 2009 a new minimum global liquidity standard.

This new regulatory framework introduces a liquidity coverage ratio that can be applied in a cross-border setting.

The Basel Committee will issue new standards by mid-2010 to take full account of counterparty credit risks, the benefits of centrally cleared contracts and collateralisation.

Overview

The Financial Stability Board has been established to address vulnerabilities and to develop and implement strong regulatory, supervisory and other policies in the interest of financial stability.

It comprises senior representatives of national financial authorities (central banks, regulatory and supervisory authorities and ministries of finance), international financial institutions, standard setting bodies, and committees of central bank experts.

The Financial Stability Board is supported by a secretariat based at the Bank for International Settlements in Basel, Switzerland.

Institutions represented on the Financial Stability Board include international standard-setting bodies like the Basel Committee on Banking Supervision (BCBS), the Committee on the Global Financial System (CGFS), the Committee on Payment and Settlement Systems (CPSS), the International Association of Insurance Supervisors (IAIS), the International Accounting Standards Board (IASB) and the International Organization of Securities Commissions (IOSCO)

Improving Financial Regulation
Report of the Financial Stability Board to G20 Leaders
25 September 2009

1. Since the London Summit, the Financial Stability Board (FSB) and its members have advanced a major program of financial reforms based on clear principles and timetables for implementation that are designed to ensure that a crisis on this scale never happens again.

2. Much has already been achieved, and much is underway that when implemented will result in a very different financial system than the one that brought us this crisis.

However, policy development is not completed, and detailed implementation of the full set of needed reforms will take time and perseverance.

3. In a globally integrated market economy, where concerns about a level playing field and protectionist pressures are real, it is vital that G20 Leaders strongly support the international policy development underway and signal their determination to implement fully and consistently the reforms at national levels.

4. In recent months, expectations have taken hold in some parts of the private financial sector that the financial and regulatory system will remain little changed from its pre-crisis contours.

These expectations – that business will be able to go on just as before – need to be dispelled.

5. Our objective is to create a more disciplined and less procyclical financial system that better supports balanced sustainable economic growth.

This system will not allow leverage to increase to the extent that it did.

Nor will we allow risks to be taken where profits accrue to individual actors but ultimate losses are borne by governments and the wider public.

6. To these ends, our program includes substantially higher requirements for the quantity and quality of capital and liquidity at financial institutions.

It also includes reforms to accounting standards and compensation regimes that improve transparency and limit incentives to excessive risk taking.

We will constrain risks in trading-related activity by improving market infrastructure and by significantly raising capital charges for trading books.

7. Our reform plans set reasonable implementation windows to avoid aggravating the present crisis.

While the financial system will continue to face challenges for some time, the faster our financial systems and economies recover, the faster we should implement finalised reforms.

8. This crisis has highlighted the moral hazard risks posed by institutions that have become too big to fail or that, by their interconnected nature, are too complex to resolve.

We need to address the deeper-seated challenges that these institutions pose.

We are committed to developing the solutions to these problems over the next twelve months.

9. In recent quarters, many financial institutions have returned to profitability.

These profits owe much to the extraordinary official measures taken to stabilise the system, many of which remain in place.

It is imperative that these profits be retained in financial institutions to rebuild capital necessary to support lending, allow official support measures to be removed and prepare institutions to meet future higher capital requirements.

10. The international supervisory and regulatory community is agreed that restricting dividend payments, share buybacks and compensation rates are appropriate means to these ends.

11. The support of G20 Leaders will be vital for the major decisions that will need to be made in these important areas, and we ask that you support us in these endeavours.

To read more:
http://www.basel-ii-association.com/Basel_ii_News_October...

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The Basel ii Compliance Professionals Association (BCPA) is the largest association of Basel ii professionals in the world, with more than 4,800 members (October 2009).

http://www.basel-ii-association.com