Banks face the challenge of meeting tough new capital and liquidity demands while delivering adequate returns to investors under testing economic conditions. Banks are not just driven by the regulatory timetables of Basel III, CRD IV, MiFID, Dodd Frank and RRP. They are also driven by what peers are doing, what markets want to see and the need to rebuild reputations.
This impacts strategy, operations, reporting and even the structure of banks suggesting it is time for a rethink of what business is viable in this new landscape. Banks need to consider how to square the immediate pressure to restructure the business, strengthen risk management, reduce costs, grow returns and devise strategies to keep pace with long-term shifts in the global economy and customer expectations.
Basel III and beyond: Stretched to the limit: Dealing with the implications of the NSFR
The bar for regulatory stress testing continues to rise as banks are required to deliver more information, in tighter timelines and with greater senior management and board involvement.
Basel Committee brushes up leverage and liquidity rules
The Basel Committee published the consultative document – Basel III: the NSFR on 12 January 2014.
The Basel Committee published its final Basel III leverage ratio and disclosure requirements for banks on 12 January 2014. They have relaxed the definition of the denominator (total exposure). This is likely to result in a lower denominator, thereby improving the bank’s leverage ratio.Banks must publicly disclose their leverage ratio from 1 January 2015. We are still waiting for a final minimum leverage requirement, but the Basel Committee has proposed 3%. Any final amendments that it considers necessary will be made by 2017, with a view to applying the finalised minimum leverage requirement from 1 January 2018.
On 17 December 2013 the European Banking Authority (EBA) published its final draft Regulatory Technical Standards (RTS) on securitisation retention rules and its final draft Implementing Technical Standards (ITS) on measures to take in case of non-compliance with retention rules relating to Articles 405 to 409, Capital Requirements Regulation (CRR).
The Basel Committee published its second report on the regulatory consistency of risk-weighted assets (RWAs) for market risk in the trading book on 17 December 2013. This study is a part of its wider Regulatory Consistency Assessment Program which is intended to ensure consistent implementation of Basel III.
The Basel Committee published its policy framework for capital requirements for banks’ equity investments in funds on 13 December 2013. The framework aims to address risks associated with banks' investments in funds and their interactions with shadow banking entities.
The Financial Conduct Authority (FCA) published PS13/10 – CRD IV for investment firms: feedback and final rules for CP13/6, CP13/9 (chapter 16) and CP13/12 on 13 December 2013.
European banks face a substantial capital crunch in 2014 through the combined impact of Basel III capital ratio requirements, leverage ratio requirements, the ECB Comprehensive Assessment, and possible further national regulatory developments. PwC estimates that total capital shortfalls in Europe will be in the vicinity of €280bn.
Jon Terry and Tom Gosling explore the CRD IV regulations and how they will impact remuneration in the banking sector.
The Bank of England (BoE) published a Discussion Paper (DP), A framework for stress testing the UK banking system, on 1 October 2013. Following the Financial Policy Committee’s recommendations that all UK banks should be subject to annual concurrent stress testing, the BoE sets out the main features of the proposed framework in the medium term.
The European Banking Authority (EBA) published draft guidelines on retail deposits subject to different outflows for purposes of liquidity reporting on 1 August 2013. The Capital Requirements Regulation (CRR) requires the EBA to issue guidelines to identify retail deposits likely to experience higher outflows under stressed scenarios, which will then be reported through the Liquidity Coverage Ratio.
The Financial Conduct Authority (FCA) published its CP13/6: CRD IV for investment firms on 31 July 2013. CRD IV was predominantly developed to prudentially regulate banks, but it will also change the initial capital and capital adequacy requirements for all MiFID investment firms that the FCA regulates. This consultation does not apply to firms prudentially regulated by the Prudential Regulation Authority (PRA) - the PRA is consulting separately on implementing CRD IV.
The EBA is consulting on own fund requirements for investment firms subject to the CRR
HMRC has published technical guidance on the tax treatment of Additional Tier 1 and Tier 2 capital instruments under the CRR.
CRD IV has been approved. Understand the implications for banking and capital markets businesses.
The EBA is consulting on Regulatory Technical Standards for prudent valuation under Article 105(14) of the CRR
The EBA is consulting on technical standards for CVA risk assessment.
The FPC 's June meeting minutes contain some important recommendations for the regulators and for firms
HFT and the question of regulation
The European Banking Authority is consulting on Technical Standards to implement Articles 344 and 345 of the Capital Requirements Regulation
The Prudential Regulation Authority is continuing to work with those banks that are still short of the 7% CET1 capital ratio recommended by the Financial Policy Committee
The Treasury Select Committee is planning to investigate how members of the Financial Policy Committee, the Monetary Policy Committee and the Court of the Bank of England are appointed.
The EBA has published near final draft Regulatory Technical Standards on own funds under the draft CRR. The draft RTS provides further guidance on issues such as definition of capital instruments, capital deductions and write-downs
The FCA published PS13/4 'FICOD - technical review amendments' on 3 June 2013, which implements changes to the Financial Conglomerates Directive (FICOD). The FCA had little discretion as to how it implemented the changes to FICOD, though did exercise some discretion in two key areas.
EBA consults on changes to own funds requirements
Treasury transposes FiCOD into UK legislation
The EBA is consulting on transactional exposures. It wants firms to look through the exposures associated with each transaction and, where possible, identify the credit risk counterparties
The Bank of England's new Code of Conduct for FPC members confirms that members may not hold other appointments or financial interests which could conflict with their FPC duties.
On 16 April 2013 the European Parliament plenary adopted the compromise texts of CRD IV/ CRR, which were agreed in trilogue in March.
The Basel Committee issued its final paper on Monitoring tools for intraday liquidity management on 11 April 2013, following a consultation in July 2012. The paper outlines a set of intraday liquidity indicators and reporting framework to help supervisors monitor how well banks manage intraday liquidity risk.
The Basel Committee published a Report to G20 Finance Ministers and Central Bank Governors on monitoring implementation of Basel III regulatory reform on 12 April 2013.
The Basel Committee published a progress report on implementation of the Basel framework on 4 April 2013 covering members’ implementation of Basel II, Basel 2.5 and Basel III and using analysis conducted as part of Basel’s Regulatory Consistency Assessment Programme.
The Basel Committee published a consultative document: supervisory framework for measuring and controlling large exposures on 26 March 2013. The proposal calls for greater consistency in the way banks and supervisors assess single counterparty exposures.
The BoE and the FSA jointly published a review of requirements for firms entering into or expanding in the banking sector summarising barriers to entry created by the FSA authorisation process and setting out changes under the PRA and FCA.
The European Banking Authority (EBA) published two sets of draft Implementing Technical Standard (ITS) on regulatory reporting on 26 March 2013.
The European Banking Authority reported on its Third Basel III monitoring exercise on 19 March 2013, using data compiled in the Results of the Basel III monitoring exercise as of 30 June 2012 which was published by the Basel Committee on the same day.
CRD IV passed a number of significant hurdles in March. The EC issued a press release confirming that trilogue negotiations on the overall package had been completed.
On 11 March 2013, the EBA published a consultation on assessing internal model changes and extensions relating to credit, market and operational risk.
On 7 March, the Financial Services Authority (FSA) announced a new policy to temporarily lift capital requirements for new lending. The FSA will achieve this by reducing banks’ Pillar 2 capital requirements to offset any increase in their Pillar 1 capital requirements which result from new lending.
You will have seen the reports overnight that the Trialogue reached provisional agreement on the bonus capping provisions with the capital requirements directive (CRD) IV. We understand that there is currently no detailed draft text that sets out the proposals and that instead the agreement has been on the key features of the proposed provisions.