What next with Basel III?

Date: 2015-10-07; view: 415.

Nowadays Bank of Russia tries to implement Standards of Basel III in the Russian banking system. The main tasks are as follows[28]:

• Improve stability of the banking system before possible crisis;

• Reduce dependence from cycling;

• Reduce vulnerability to the risk of acute liquidity shortage;

• Improve the quality of credit portfolio;

• Improve corporate management and risk management;

• Increase of transparency for the capital markets.

Basel III substantially stricter regulation compared with Basel II. First of all it clarifies concept of Tier I capital, ie of capital, which should absorb the losses in the period, while the bank has not yet brought to the bankruptcy. Basel III introduce the notion of core capital (common shares and retained earnings). There are particular standards of capital adequacy which are set for core capital. Other forms of Tier I capital (subordinated loans, options and other) are taken into account in the capital of the first level only under certain conditions (such as subordinated loans should be open-ended, and contain conditions for the conversion into ordinary shares). It also introduces capital buffers: Buffer Conservation (accumulated in good times to compensate for losses in unfavorable periods) and the countercyclical buffer (introduced by regulator to protect the market from overheating).

Basel III also introduces new liquidity ratios - instant, short and long term as well as new methods and approaches to measuring and evaluating risks. More stringent standards for the supervision of banking activities, increased disclosure requirements and risk management are designed to provide adequate performance of the new system. Leverage ratio will be introduced in addition to this monitoring system. Leverage ratio is the highest ratio of assets without taking into account the risk-weights to the capital.

Standards of Basel III are implemented in phases, the corresponding program will last until 2019. The periods for implementation in different countries are different as well as specific regulatory requirements and approaches depending on the specifics of national regulation and the state of the economy. In this sense, it seems that Russia, as always, will move its special way.

The Bank of Russia has published a number of documents in the framework of implementation of the standards of the Basel III in Russia:

Table 5 Bank of Russia Documents in accordance with Basel III[29]