Basel III: Implementing the New Global Regulatory Framework


Shyamala Gopinath
Former Deputy Governor, Reserve Bank of India



Tuesday 4 December - The new regulatory landscape

13:00 - Chairman intro and participants' challenges
Shyamala Gopinath, Former Deputy Governor, Reserve Bank of India

In this session, the chairman will survey the major international regulatory developments and invite participants to discuss those which they anticipate will have the deepest impact on their economies. The session gives an opportunity for the delegates to raise issues of particular importance to them, such as roadblocks in the implementation of new regulatory directives. This discussion will enable later sessions to target the specific concerns of participants.

14:00 - Coffee Break

14:15 - Assessing the impact
Tarisa Watanagase, former Governor, Bank of Thailand

The new Basel Accord has been framed with the needs of crisis-hit banks in mind. Yet many regional regulators already introduced range of macroeconomic tools following currency and financial crises in the past, and as a result, these banking sectors are relatively well capitalised. What are the costs and benefits of Basel III implementation on the functioning of markets and economic output? How can supervisors adapt Basel III rules and tools to national/regional circumstances? What challenges are regulators facing? This session will first look at the broad impact of Basel III capital and liquidity requirements and then look at the approach regulators need to use when evaluating the likely effects on domestic institutions, markets and consumers.

15:30 - Coffee Break

15:45 - Phasing in - what, when, why
Rajnish Kumar, Deputy General Manager, Reserve Bank of India

With a view to avoiding the unintended consequences that bedevil new regulations, officials around the world areopting to phase in elements of the Basel III regulatory mix over an extended period of time. While this approach has obvious attractions, it raises a number of key questions. What are the variables that regulators need to consider when setting the implementation timeline for the elements? Is implementation ahead of schedule beneficial or does it bring hidden risks? To what extent should scheduling be affected by feedback from commercial banks and, indeed, experiences in other jurisdictions? To date, the implementation schedule has not been consistent across the region - is there need for consistency? In this session, delegates will be invited to discuss and compare the approaches followed by their domestic institutions.

17:00 - Coffee Breaks

17:15 - Institutional arrangements for inter-organisational coordination
Shyamala Gopinath, Former Deputy Governor, Reserve Bank of India

The global financial crisis exposed showed clearly the extent and depth of interconnectedness between banks and non-bank financial institutions. A clear lesson of this experience, as policymakers acknowledge, is the importance of better coordination of micro and macro supervision. As a start however an institutional structure that clearly delineates the responsibilities of banking, insurance, securities regulators, central bank policy groups and the ministry of finance is required. Beyond this promptness and decisiveness of action taking is paramount importance. This session will consider alternative approaches to achieving this division of labour and coordination of action.

18:30 - Close of day one

Wednesday 5 December - Capital and liquidity implementation challenges

09:00 - Implementation of counter-cyclical buffers
Tarisa Watanagase, former Governor, Bank of Thailand

The counter-cyclical buffer element of Basel III has been identified as probably least appropriate and most testing for economies. When should the tool be employed? What is the risk of obstructing lending to important sectors of the economy? These are questions policymakers are wrestling with now. This session will discuss appropriate and reliable indicators for the build-up of systemic risk and what metrics would indeed indicate the turning point for the release of the buffer. Discussions will also focus on how regulators should communicate to the markets that the buffers need to be trigged without causing panic in the markets and how a counter-cyclical buffer would co-exist with other macroprudential tools.

10:45 - Advanced vs standardised approach

As local regulators push ahead with implementation, the costs of bringing in the accord's assessment and reporting infrastructure is creating a significant drag on the banking sector. Specifically, the reporting of the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) prove to be the most challenging - necessitating highly granular data on both assets and liabilities. This session will look at how can supervisors best assess improved modeling and how often - what resourced to supervisors need. It will also discuss what should local regulators set as the standardised measures to calculate risk-weighted assets.

14:00 - Tackling high-quality liquid assets needs

New liquidity requirements are another key test in Basel III, several changes stand out immediately. How can regulators and banks tackle the lack of high-quality liquid assets in those jurisdictions that are less active at the international sovereign bond markets, do not borrow in domestic currencies and where developed capital markets and credit ratings are not common? This session will look into how to firstly define liquid assets when operating in several currencies is not uncommon and "liquid" may be very jurisdiction specific. Secondly, discussion will focus on how supervisors and central banks can cooperate on this issue.

15:45 - Liquidity regulation: specificities for foreign banks' operations

Foreign banks present a particular challenge for host regulators with regard to liquidity. The connection to larger parent institutions domiciled elsewhere makes it difficult for regulators to gain a full view of the liquidity exposure. In a worse-case scenario the connection as can exacerbate capital flight or act as a conduit for contagion. This in turn can impact the domestic financial sector and the economy and complicating, if not making impossible, conducting of orderly bank resolution processes. As a result, host regulators are now putting extra efforts into tightening liquidity controls on important cross-border financial institutions operating in their jurisdictions and establishing ring-fencing rules. Communication plays a key part in this process and this session will discuss this important aspect as well as accounting, legal and risk management.

17:30 - Domestic SIFIs - the appropriate metrics for labeling
Rajnish Kumar, Deputy General Manager, Reserve Bank of India

While there is clear guidance from the Financial Stability Board on identifying and handling global systematically important financial institutions (G-SIFIs), national regulators have been left on their own in find the metrics for labeling domestically systematically important banks (D-SIBs). Furthermore, the treatment of G-SIFIs and D-SIBs is, in many cases, interlinked and capital charges would move in opposite directions. This session will look at how national host regulators can identify D-SIBs and also how can cooperation and coordination issues be best managed with home regulators of G-SIFIs.

Thursday 6 December - Leverage

09:00 - OTC derivatives
Jason Ekberg, Principal, Corporate and Institutional Banking (CIB), Oliver Wyman

OTC derivatives reform is proving challenging for one simple reason: banks in non-G7 countries are typically not members of global central counterparties. Hence there is a need for development of CCPs at regional levels. In the meantime, banks will need to clear their trades through global CCPs member banks - a costly fix. Should national regulators demand clearing through domestic CCPs it would lead to heightened cost as local banks might need to become members of numerous CCPs and it could hinder dealing with large global banks who insist on membership in global CCPs. CCPs impose further costs on trades in margining and collateral requirements and capital for un-cleared trades. This session will discuss the viability and arrangements for an interoperability framework as a solution to these problems.

11:00 - Trade finance - need for regional discretion on credit conversion factors (CCF)?
Jason Ekberg, Principal, Corporate and Institutional Banking (CIB), Oliver Wyman

Trade finance is of great importance, especially in Asia, where inter-regional trade is thriving. Basel III's treatment of liquidity standards and off-balance sheet financing puts trade finance in the same bracket as derivatives. Many feel this association is unfair as trade finance has lower risk and lower return. So that under Basel III's leverage ratio the credit conversion factor (CCF)turning off-balance-sheet exposure to an on-balance-sheet equivalent is the same for risky derivatives as for low risk trade finance. The CCF for trade finance is 100%. This session will discuss the need for changing the CCF for trade finance under the leverage ratio. It would also look at the treatment of trade finance under the liquidity coverage ratio.

13:00 - Closing session
Shyamala Gopinath, Former Deputy Governor, Reserve Bank of India

The day and the course will conclude with a session led by the chairperson drawing in the main points of the course including the findings of the workshop. Delegates will be encouraged to pool their thoughts and prepare action points to take back to their home institutions.