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Causal Capital ~ The Knowledge Capital Specialists

Basel Reforms Slip

The Bank for International Settlements released a statement this week to announce its reform deadline has slipped. Originally the global banking regulator was targeting the close of 2016 for sign off of its new Basel III requirements, but in reality, even the end of Q1 2017 would be an optimistic target. At the very least, one has to consider the world's top supervisors need to be present for an official reform approval and beyond the dispute, it's probably not so straightforward managing these peoples' calendars.

The Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision, welcomes the progress made towards completing the Basel Committee's post-crisis regulatory reforms.

However, more time is needed to finalise some work, including ensuring the framework's final calibration, before the GHOS can review the package of proposals. A meeting of the GHOS, originally planned for early January, has therefore been postponed. The Committee is expected to complete this work in the near future.

Unified agreement between the members of the supervisory board needs to be brokered before the Basel Reform can be approved, and disagreements on cutting down internal models to replace such systems with capital floors has created a divide between different members of the board. More Information can be found here [LINK].

For what it's worth, the Basel Committee was also supposed to release its final guidance on newly drafted cut back operational risk methods, but that deadline has also slipped.

Many of those looking for risk measurement simplification argue that bank managers are too 'capital greedy', should bite the bullet and accept the cost of a capital floor. That, in my opinion, misses the point entirely on why bank managers need to make lending decisions using risk measurements that are sensitive to the risk being taken rather than simply accepting some arbitrary fragile capital proxy. One would have thought that was obvious but apparently a simple model similar to the theme under Basel I that is more complex to implement, is the way some central regulators want to proceed. It's going to be difficult to find common ground between regulators and let's see if Basel III can be shoehorned into the global banking system before mid 2017.


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