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Causal Capital ~ The Knowledge Capital Specialists

Basel Pillar 3 Facelift

Monday, March 14, 2016

About a year or so ago, the Bank for International Settlements (BIS) revised its pillar 3 disclosure requirements for banks. This amendment felt as if it was a response to so many institutions disclosing disparate tripe much of the time. Today, BIS have released a new consultative document that sets out their entire vision as part of a second and hopefully final phase of facelifts for this reporting requirement.

 

Basel Committee on Banking Supervision Pillar III Revision | BIS [LINK]

 

The first thought that comes to mind is simply that of astonishment. This is going to be a huge amount of work for some banks and those institutions which have been avoiding such detailed analysis since the beginning of Basel II, are likely to find this ninety-six-page reporting requirement completely overwhelming.  For some banks, it will feel like the reset button has been pressed and Basel II is starting all over again.

 

On one hand, it is a bit saddening to see regulatory reporting becoming so nanny state and prescriptive, a sign of the times for the world of risk we can see. On the other hand, this is potentially a game changer. In effect, every bank across the planet is going to be brought onto a level playing field of disclosure and will be required to publish an incredible amount of quite revealing information. Reporting this type of internal details about the internal structure of a bank and so frequently might I add, pushes the rating agencies into the limelight in some respects. More importantly, there is going to be nowhere to hide for executives in these institutions.

 

"The regulatory framework: balancing risk sensitivity, simplicity and comparability”, the Committee noted that it could be beneficial for a standardised suite of resilience measures to be developed, together with standardised definitions and a disclosure template, in order to help investors’, compare these measures across banks and over time."

Pillar III Reporting Objective | BCBS

 

BIS have several intentions here but this new requirement is certainly in spirit of it all, aligned to their other objectives of homogenous comparability. This has been a motive for the global regulator for some time now, that banks can be compared, rated, scored and at a capital level. Secondly, BIS are trying to identify a framework that is sensitive and simple to apply. Whether these two objectives can operate synonymously together is another story entirely but either way some risk departments in banks have quite a bit of work to do to catch up.

 

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