Basel 111 update

November 10th, 2013 by Stephen Jones Leave a reply »

What is Basel III?
Simply put, the Basel Accords are a set of rules on banking regulations with regards to capital. These are extended by Basel III. This provides for a series of additions to the existing accords and are designed to limit the likelihood and impact of a future financial crisis. It requires banks to hold more higher-quality capital against more conservatively calculated risk weighted assets (RWAs), and to reduce excess leverage while ensuring sufficient liquidity during times of stress.

On the 19th November 2012, Abu Dhabi Islamic Bank (ADIB), one of the world’s leading Islamic banks, successfully issued us$1 billion-worth of additional tier 1 capital certificates, the world’s first Basel III compliant Tier 1 Sukuk issuance.

In 2012 the UAE Central Bank had indicatedthat it would begin enforcing the new capital and liquidity ratios for banks in the country from January 1, 2013,. However, on December 17, 2012, the Central Bank postponed these new regulations until further notice.

The Qatar Central Bank (QCB) last month sent a draft circular to banks on new Basel III capital rules, which build on the Basel I and Basel II documents and seek to improve the sector’s ability to deal with financial and economic stress, improve risk management and strengthen banking transparency.

The QCB circular, which included requirements for issuance of instruments such as hybrid bonds, is aimed at a quantitative impact assessment, which will form the basis for its decision.

Status?
Many companies have made moves to adopt while others are still dragging their feet

The report by the Basel Committee on Banking Supervision – to the G20 on Basel 111 in August 2013
indicates that the regulations are still evolving via consultation.

The core elements of the Basel III capital framework were finalised in 2010. Since then, the Basel Committee has largely completed the remaining components, including the capital frameworks for G-
SIBs and D-SIBs and the final standard for the LCR.

In June and July 2013, the Committee published a series of documents, including an updated
assessment methodology and higher loss absorbency requirement for G-SIBs. It also made substantial
progress in a range of areas of the Basel framework. Specifically, the Committee issued the following consultative documents:

Revised Basel III leverage ratio framework and disclosure requirements

Capital treatment of bank exposures to central counterparties;

The non-internal model method for capitalising counterparty credit risk exposures;

Capital requirements for banks’ equity investments in funds;

and Liquidity Coverage Ratio disclosure standards.

The Committee will finalise these documents after considering comments from stakeholders
and interested parties. Further work is also under way in relation to trading book capital requirements,
securitisation and the Net Stable Funding Ratio. It is intended that these policy reforms will be largely
completed during the course of 2014.

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