Concerned that supervisory bodies may set tight implementation and enforcement deadlines, the banks face the dilemma of beginning to revise their strategies, business and operating models, governance and culture without the benefit of clear or finalized regulatory guidelines.
Among key considerations:
- Basel 3, including the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD), is now entering implementation but many unknowns remain in terms of liquidity, the leverage ratio and risk weighted assets.
- CRR/CRD also create provisions for capital surcharges on systemically important banks, systemic risk buffers and potential limits on bank exposures as well as disclosure requirements.
- Basel is yet to finalize issues relating to large exposures, central counterparties, Pillar 2 capital requirements and securitization. There has been some effort to relax initial proposals that were viewed as overly stringent and onerous.
- The Basel Committee published proposals to introduce a tougher trading book regime, reducing the benefits of using internal models, raising costs for banks and fundamentally changing the dynamics and economics of trading.
- Basel continues to work on setting a Net Stable Funding Ratio, requiring banks to hold adequate stable deposits against lending activities, and in the meantime banks must report current ratios until a final rule is determined.
- Basel 4 may already be emerging, even before Basel 3 is finalized, with a new focus on regulatory simplicity and comparability of banks across jurisdictions. The Committee is currently weighing the pros and cons of this direction and the merits of shifting emphasis among the three pillars.
- The European Central Bank will become the primary banking supervisory in late 2014, and banks must prepare for the ECB’s comprehensive assessment without a clear understanding of the ECB’s supervisory, regulatory and macro-prudential stance.
- Banks must prepare to satisfy the Bank Recovery and Resolution Directive which comes into force in 2016, by developing recovery plans, cooperating with resolution authorities and making necessary changes to capital holdings, business activities, legal and operating structures.
Review section one of the report (PDF 2.87 MB) for an in-depth overview of current regulatory direction and highlights of outstanding issues, their status and the potential impact on the banks.