Basel III: Implications from COVID-19
The Basel Committee on Banking Supervision (BCBS) completed the initial phase of the Basel III reforms in December 2017. These reforms seek to restore credibility in the calculation of risk-weighted assets (RWAs) and improve the comparability of banks’ capital ratios. RWAs are an estimate of risk that determines the minimum level of regulatory capital a bank must maintain to cover unexpected losses and is an integral element of the risk-based capital framework.
The main changes on credit risk (the main risk facing European banks) are to provide a more detailed risk-weighting approach, particularly for residential and commercial real estate and reduce the reliance on external credit ratings. With operational risk the reforms make it easier to compare RWAs across banks by removing the option to use multiple approaches and the option to use internal models. The revised output floor limits the amount of capital benefit a bank can obtain from its use of internal models relative to using the standardised approaches. The reforms also introduce a leverage ratio buffer for G-SIBs to make sure that the leverage ratio continues to act as a backstop to the risk-based requirements for G-SIBs.
The European Commission have made very clear that they are committed to implementing the revised Basel III rules on time. They were expected to present a legislative proposal in June 2020, but on 27 March BCBS announced a delay in the implementation of these reforms by one year to 1 January 2023.
Consistent with previous implementations of Basel rules, the European Commission has reiterated that the EU will respect the BCBS agreement but will also take into account, within the flexibility allowed by the agreement, and accordingly adapt the framework to reflect European specificities. The EBA and ECB Banking Supervision have emphasised the importance of the EU not deviating from the rules agreed by the BCBS.
On the other hand, European Finance Ministers made a commitment in 2018 that the implementation would not lead to an increase in aggregate capital for EU banks. Many MEPs have also called on the European Commission to take into account EU specificities and there is increasing pressure for the EU to modify the Basel III reforms framework to mitigate the expected capital impact of the revised rules.
This event discusses whether COVID-19 should necessitate a further delay in the implementation of the Basel III standards? How extensive and in which areas should Europe deviate from Basel III? What are the implications of not deviating from the Basel agreement? Does implementation of Basel III in Europe make it more difficult for tackle structural weaknesses that plague European banks, such as low profitability, a lack of consolidation and NPLs?
- Webinar link: https://zoom.us/j/95686950084
Speakers
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Dominique GraberHead of Group European Public Affairs, BNP ParibasDominique is Head of BNP Paribas European Public Affairs since 2005 and co-head of Group Prudential and Public Affairs since 2009. In this position, she coordinates the group’s lobbying activities towards European Institutions and advises the top management of the group on European Public Affairs. Dominique has spent nearly all her career at Banque BNP Paribas, where she has held a variety of positions. She has been CEO of “Atelier BNP Paribas”, a subsidiary which is used to monitor developments and provides strategic consulting on new information and communication technologies. Between 1997 and 2000, she had a role of head of strategic planning in the Strategy and Development department, and then became head of the CEO’s office in charge of BNP Paribas’ investment banking operations. Prior to that, Dominique has spent several years in the Economic and Financial Research department, as an analyst covering North American economies, and then as deputy head of the department. At an earlier stage of her career, she has worked in venture capital.
Dominique graduated at the Institut d’Etudes Politiques in Paris and is a former student of the Cycle des Hautes Etudes Européennes (Simone Veil class). As part of her interests, she is a long standing Member of the Société d’Economie Politique, Vice-President of the Board of “Confrontations Europe”, the only French think tank with a presence in Brussels. She was also Chair of “La Vie au Grand Air- Priorité Enfance”, a Foundation which aims at educating and reintegrating children, who have no options left.
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Matt HolmesManaging Director, Government and Regulatory Affairs, Deutsche BankMatt Holmes is Managing Director and Head of Regulatory Policy & Advocacy for Deutsche Bank. In that role he is responsible for managing the bank’s engagement with key regulatory policy debates globally and has been closely involved in preparation for Brexit.
Before joining Deutsche Bank in 2010, Matt headed up the financial services practice in a leading UK public affairs consultancy and prior to that worked as a policy advisor at HM Treasury covering financial services and regulatory issues.
He has an MSc from the London School of Economics and a BA from the University of Cambridge. -
Nathalie BergerHead of Bank Regulation and Supervision Unit, DG FISMA, European CommissionNathalie leads the European Commission Unit that brought forward the Commission’s response and exceptional measures following the Covid-19 pandemic, to encourage continued bank lending to households and businesses, through clarification of the regulatory framework and targeted temporary alleviations of prudential requirements. Nathalie’s department promotes a stable, sustainable and integrated banking sector through robust but proportionate prudential rules and integrated supervision. Under her leadership, the unit contributes to the work of the Basel Committee on Banking Supervision and ensures responsibility for the policy implementation of the Basel framework in the European Union. It cooperates with the European Banking Authority and the Single Supervisory Mechanism. Prior to taking up this position in April 2019, Nathalie was in charge of Insurance and Pensions, with responsibilities covering the Solvency II review, consumer insurance, motor insurance and pension funds. Major achievements include the Pan-European Personal Pension Product (« PEPP »), a flagship measure under the Capital Markets Union, and the EU/US Covered Agreement on insurance and reinsurance, removing collateral requirements imposed on EU reinsurers in the US. Beforehand, Nathalie had been leading the Unit responsible for Audit and Credit Rating Agencies, since 2012.
She previously worked as an expert in company law and corporate governance, and from 2007 onwards as a Deputy Head of Unit in charge of Relations with the European Parliament and Council as well as Policy Coordination. Nathalie started her career as a lecturer and free-lance consultant for a banking group. She joined the European Commission in 2000, mainly responsible for the development of Commission implementing powers in the field of financial services. She was a member of the Commission Task Force on the Future of the European Union and an advisor to the Commission representatives at the European Convention. A French national, Nathalie holds a Ph.D. Doctorate in Law and a Bachelor of Arts in Politics. She is the author of several articles and a book on European law and policies. -
Tomohiro IshikawaManaging Director & Head of Government and Regulatory Affairs, MUFGTomo heads up the Global Regulatory Affairs Department at MUFG, based in Tokyo.
Prior to his current role, Tomo headed the EMEA Regulatory Strategy team, based in London, for MUFG.
Tomo graduated from Keio University (Tokyo, Japan) in 1996. He lived in Toronto, Canada, prior to studying economics at Keio.