Financial Regulatory Forum

U.S. regulators’ Basel III rules package signals intent to maintain momentum in big-bank reforms

By Bora Yagiz

NEW YORK, July 17 (Thomson Reuters Accelus) - In a move considered to be the most complete overhaul of U.S. bank capital standards since Basel I in 1988, three U.S. banking regulators (the Federal Reserve Board, Office of Comptroller of the Currency, and Federal Deposit Insurance Corporation) have finalized the three Basel III-related notices of proposed rulemaking (NPRs) from 2012 on capital rules.

Collectively, the rules raise capital ratios, expand the base of assets for risk-based capital calculations, make changes to the methodology for calculation of credit risk weightings for banking and trading book assets and put emphasis on a stricter definition of capital, especially with regards to common equity Tier 1 (CET1) capital, the highest quality of equity. Higher quality of equity is perceived to provide a better safety net for the financial system in economic downturns, but this safety comes with a higher cost of business for the banks. Simply put, money kept as capital is not invested.  (more…)

CORRECTED: Bank regulators globally add AML to safety and soundness issues

By Nick Paraskeva, for Compliance Complete

NEW YORK, July 8 (Thomson Reuters Accelus) - Bank regulators around the globe are increasingly focusing on anti-money laundering (AML) and operational risks as part of their role in overseeing institutional safety and soundness. This follows huge enforcement fines imposed on systemically important banks by regulators and justice ministries. It also reflects a concern that any attendant hit on a bank’s reputation could affect its ability to obtain short-term funding or trade other than on a fully-secured basis.

The Basel Committee on Banking Supervision last week proposed standards on money laundering risks, which require banks to include AML within their firm-wide risk management process. “Basel’s commitment to AML is fully aligned with its mandate to strengthen the regulation, supervision and practices of banks worldwide, with the purpose of enhancing financial stability,” the committee stated on issuing the proposal for consultation. (more…)

Basel paper offers new look at bail-in models for ailing institutions

By Bora Yagiz, Compliance Complete

NEW YORK, June 12 (Thomson Reuters Accelus) - A recent Bank for International Settlements (BIS) quarterly review article attempts to solve the too-big-to-fail (TBTF) problem without causing systemic disruption to financial markets, by offering a new resolution template to recapitalize banks on the verge of bankruptcy. It may, however, inadvertently legitimize a de facto bail-in model against the consent of depositors, and put their money at risk.

Since the financial crisis of 2008, regulators worldwide have sought to reduce the likelihood of a TBTF failure through increase in capital quality and quantity enshrined internationally in Basel III, as well as setting various resolution mechanisms set to wind down failing institutions.  (more…)

No bank is ‘too big to jail,’ U.S. Attorney General Holder warns

By Stuart Gittleman, Compliance Complete

NEW YORK, May 20 (Thomson Reuters Accelus) - Corruption, cyber threats and transnational organized crime – and the money laundering that greases the wheels of illicit commerce – are high on the list of law enforcement priorities, U.S. Attorney General Eric Holder told the House Judiciary Committee on Wednesday. (more…)

First wave of U.S. living wills has limitations, but offers useful start

By Bora Yagiz

NEW YORK, July 9 (Thomson Reuters Accelus) - The “living will” resolution plans submitted to U.S. regulators by nine big banks last week suffer from a number of limitations, including narrow scenarios of financial distress and an assumption that regulators will be coordinated in their approach. But there will be plenty of opportunity to perfect the blueprints.

Five major U.S. banking organizations and four foreign-based bank holding companies with $250 billion or more in total nonbank assets submitted on July 2 their resolution plans, or “living wills,” to the Federal Reserve Board and Federal Deposit Insurance Corporation (FDIC) as required by section 165(d) of the Dodd-Frank Act (DFA). This constituted the first of the three waves of submissions of a staggered schedule arranged according to the banks’ sizes and due to be completed by end-2013. These plans to complement the recovery plans that are designed to maintain firms under extreme stress as going concerns, will serve as the official point of entry for bankruptcy. (more…)

Fed’s capital proposal not as tough as feared, may give U.S. banks advantage

By Rachel Wolcott

NEW YORK/LONDON, Dec. 22 (Thomson Reuters Accelus) - Considering the cost of the financial crisis to the American taxpayer — anywhere between $700 billion and $12.8 trillion depending on who you talk to — the proposed capital rules the Federal Reserve published yesterday seem pretty lenient, compare to those mooted by some European countries.

However, it is a certainty that the same U.S. bank CEOs who have been so vociferous in their criticism of any increase in capital requirements, will continue their efforts to pare down the amount of capital they are required to hold. (more…)

ANALYSIS-Europe’s banks face harsh reality of Basel III jolt

By Steve Slater, European Banking Correspondent

LONDON, Feb 2 (Reuters) – New rules on bank capital will jolt the industry and could force European lenders to raise more cash and restrain returns, dividends and pay for at least the next two years, analysts and industry sources say.

The impact of the proposals — dubbed Basel III – has been underestimated by investors and banks, and clarity on the new rules could be a shock, several analysts said.

The rules could drive the core Tier 1 ratios — a measure of a bank’s strength — at Lloyds Banking Group and Credit Agricole down to near 4 percent, require Barclays to plug a 17-billion-pound capital gap and hurt HSBC and BNP Paribas harder than peers.

ANALYSIS – Shadow banks hold key to post-Basel bank profits

By Kevin Drawbaugh

WASHINGTON, Jan 26 (Reuters) – Bank profits are set to come under serious pressure at the end of 2012 from higher global capital and liquidity standards, but just how bad it gets depends greatly on the future of the “shadow banking system”.

U.S. banking sector analysts are increasingly focused on the interplay between the setting of global capital standards and parallel efforts to bring non-bank financial institutions to heel and moderate their resurgence in credit markets.

The ability of regulators to bring “shadow banks” — investment firms, hedge funds, insurers, special investment vehicles — under a new oversight regime will help determine the pricing power banks have to raise rates on future loans.

BoE’s King calls for radical reform of banks

By Tim Castle

LONDON, Jan 26 (Reuters) – Radical reform is needed to make the banking system safer, Britain’s top central banker said on Tuesday, adding U.S. President Barack Obama’s plan to curb some activities would not fully solve the “too big to fail” problem.

Bank of England Governor Mervyn King said there was no “silver bullet” to solve the banking sector’s problems, and tinkering with regulation alone, such as bumping up capital and liquidity requirements, would not be enough when “stuff happens”.

Radical reforms were also needed to change the liability structure of the banking system, so creditors can’t simply walk away unscathed when a bank fails, King said.

Basel group wants stricter bank standards by 2012

The Bank for International Settlements (BIS), central bank to the world's central banks, and parent organisation of the Basel Committee on banking supervision. By Sven Egenter and John O’Donnell

ZURICH/BRUSSELS, Dec 17 (Reuters) – Banks face having to hoard more funds or turn to investors for fresh capital within as little as three years under proposals by a body which guides global financial regulation.

Seeking to prevent this year’s financial crisis from being repeated, the Basel Committee of central bankers and supervisors on Thursday demanded stricter rules for the capital which banks maintain to shield their depositors and shareholders from loss.

Although its recommendations are not binding, they herald a tougher regime for banks; regions such as the European Union will use them as a reference, and higher capital requirements may end up slowing down lending or investment banking business. On Thursday, the EU said it was studying the Basel report.

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