Has the jurisdiction implemented the Basel III framework with respect to regulatory capital? Are there any major deviations, e.g., with respect to certain categories of banks?
Banking & Finance
On May 2013, the Bank of Israel issued a series of guidelines under the PBC Rules, to be used to implement the global regulatory framework for more resilient banks and banking systems issued by the Basel Committee on Banking Supervision in the Basel III framework. The implementation of the Basel III Rules in Israel was principally defined in PBC Rule 202 which adopts the Basel III Rules in Israel, and sets forth the necessary adjustments to the then-existing PBC Rules, which dealt with capital requirements and calculations for Israeli banking institutions, as well as the introduction of additional new rules such as the requirement s for liquidity coverage ratios (dealt with in greater detail below).
The regulatory capital requirements set forth by the Bank of Israel in the PBC Rules are based on four underlying principles:
- The banking institution should have a proper process in place which will enable the estimation of its general capital adequacy in relation to its risk profile as well as a strategy to maintain its capital levels.
- The Supervisor of Banks shall review and estimate the internal capital adequacy and strategy of the banking institutions as well as their ability to monitor the regulatory required capital ratios in order to ensure compliance therewith. The Supervisor of Banks shall apply its supervisory authorities and powers where it shall not feel comfortable with the findings of such review.
- The Supervisor of Banks expects the banking institutions to be in a situation in which their capital levels shall be above the minimal regulatory requirements and it will be able to require that banking institutions maintain higher capital levels than those minimally required according to the PBC Rules.
- The Supervisor of Banks shall interfere, in early stages, in order to prevent a decrease in the capital levels below the minimum requirements which are applicable in connection with the risk profile of a specific banking institution and it will require remedial actions where the capital levels are not maintained or their previous levels are not recovered.
The PBC Rules set forth very elaborate and detailed guidelines and instructions as to the processes and procedures which should be implemented by the banking institutions in order to assess and maintain their capital requirements.
The PBC Rules in connection with the Basel III minimal capital requirements generally apply to banking institutions in Israel (other than foreign banks) and to credit card companies. The capital requirements differentiate between the total regulatory capital requirements and the Tier 1 capital requirements for banking institutions of which the balance sheets comprise 20% or more of the total balance sheet assets of banking institutions in Israel (currently the two largest banks in Israel; such are required to maintain 13.5% and 10% ratios, respectively), and those whose balance sheets are smaller (which are currently required to maintain 12.5% and 9% ratios, respectively). The Supervisor of Banks is authorized to set forth higher minimal ratios for specific banks.
The Basel III framework has been implemented through two legislative acts: Directive 2013/36/EU (the “CRD IV”) and Regulation (EU) N° 575/2013 (the “CRR”). Since the entry into force of the CRR being directly applicable in Hungary, rules applicable for regulatory capital (in Hungarian: szavatoló tőke) has been removed from the Hungarian Banking Act and credit institutions shall calculate their regulatory capital on the basis of the requirements set out in the CRR. Additionally, provisions relating to the different capital puffers have been also implemented by the Hungarian Banking Act on accordance with CRD IV, such as systematic risk buffer. There are no major deviations under the Hungarian regulation.
Furthermore, regulatory capital requirements applicable for troubled institution being under resolution (please see details under Question No. 20) shall be determined by HNB acting in its capacity of both supervisory and resolution authority.
Basel III framework with respect to regulatory capital has been implemented by the means of the EU law, namely, the Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD IV), the requirements of which have been transposed to the national law of the Republic of Latvia by amendments to existing legislative instruments and adoption of new ones. While CRD IV governs, among other things, access to deposit taking activities and corporate governance of banks, the CRR sets the capital requirements that institutions need to respect and thus translates the bulk of the Basel provisions (http://www.europarl.europa.eu/RegData/etudes/BRIE/2017/599385/EPRS_BRI%282017%29599385_EN.pdf).
Yes, no major deviations from international financial standards and EU CRD IV/CRR package. After the main provisions of CRD IV were transposed into Lithuania’s law in April 2015, new capital buffer requirements for banks have been applied to target structural and cyclical systemic risks to the Lithuanian financial system. Given the general absence of cyclical imbalances in the Lithuanian credit market, the countercyclical capital buffer rate has been set at 0%, but this level can be increased when necessary to increase the resilience of the banking sector and contain excessive credit growth and financial leverage.
Yes, the CRR has been implemented in Poland. There are no major deviations with respect to certain categories of banks.
In principle, banks in Poland must maintain own funds (i.e. the sum of Tier 1 capital and Tier 2 capital), within the meaning of the CRR, adjusted to the size of their operations, which shall be not lower that the higher of:
- the amount required to satisfy the ratio specified in Art. 92 of the CRR; or
- the amount of internal capital that they consider adequate to cover the nature and level of the risks to which they as a bank are or might be exposed (including changes to the economic environment).
Basel III framework with respect to regulatory capital was mirrored in our jurisdiction which has been aligned with the European banking legislation, phased-in until 2019. There are no major deviations for certain categories of banks.
Yes. The capital adequacy norms prescribed by the Basel III framework (with minor deviations) have been implemented in India with effect from 1 April 2013, however, the implementation has been proposed in a phased manner. Full compliance is targeted to be achieved by 31 March 2019. These norms apply to all scheduled commercial banks in India including public sector banks (but excluding regional rural banks). Banks are required to comply with these requirements on a ‘solo and consolidated’ basis. There has been some speculation that India might defer some of the implementation deadlines as the banking sector has been under some stress in recent times due various macroeconomic factors.
The FSA has implemented the Basel III framework with respect to regulatory capital for banks with international operations, and applies a more simplified capital adequacy regulation to banks without international operations.
The MFSA has implemented the EU CRD IV/CRR package with respect to regulatory capital. No major deviations are to be noted and, in fact, credit institutions are advised to refer to the relevant articles in the CRR, related Regulatory/Implementing Technical Standards and any other Guidelines or any other relevant EU legislation that may be issued from time to time. There are no additional domestic-specific provisions in this respect.
In December, 2013, the CBN issued a Circular to all Nigerian Banks and Discount Houses on the implementation of Basel II/III framework with respect to regulatory capital in Nigeria. The Circular attached, in line with the provisions of section 13 of the BOFIA, the CBN Guidance Notes on Regulatory Capital Measurement and Management for the Nigerian Banking System for the implementation of Basel II/III in Nigeria (Basel Guidance Notes). The Basel Guidance Notes apply to all Banks in Nigeria.
The Basel Guideline adopts the standard of Basel 2 for the capital requirements on the computation of credit, market and operational risk, and also incorporates some of the standards of Basel 3 by making provision for capital buffers and new capital and liquidity standards to strengthen the regulation, supervision, and risk management of the banking sector.
Yes, Norwegian laws comply with the Basel III framework with respect to regulatory capital through implementation of Directive 2013/36/EU (Capital Requirements Directive IV (CRD IV)) and Regulation (EU) 575/2013 on prudential requirements for credit institutions and investment firms (Capital Requirements Regulation) (CRR)). Norwegian law has no major deviations from the CRD IV or CRR.
Basel III framework regarding regulatory capital was implemented in Portugal through European legislation.
In this regard, Directive 2013/36/EU, of the European Parliament and of the Council (CRD IV) was transposed into national law through Decree-Law 157/2014, of 23 October, which amended the Legal Framework of Credit Institutions and Financial Companies (Decree-Law 298/92, of 31 December). In addition, European implementation of Basel III rules was also executed, at Union level through Regulation (EU) 575/2013 (CRD) – this Regulation has direct application in national law.
Qatar has implemented the Basel III.
The regulatory capital will consist of the sum of Tier 1 (“T1”) Capital: going-concern capital and Tier 2 (“T2”) Capital: gone-concern capital.
The Tier 1(“T1”) Capital: going–concern capital will consist of Common Equity Tier 1 capital (“CET 1”) and Additional Tier 1 (“AT1”). The minimum capital requirements for Qatari banks are: a) CET1 must be at least 6.0% of risk weighted assets at all times, b) T1 Capital must be at least 8.0% of risk weighted assets at all times and c) Total Capital (T1 Capital plus T2 Capital) must be at least 10.0% of risk weighted assets at all times.
Switzerland implemented the Basel III capital framework with effect as of 1 January 2013.
Building up on these rules, special requirements apply for systemically important banks (SIBs), subject to certain phase-in provisions. SIBs must hold sufficient capital that absorbs current operating losses to ensure continuity of service (going concern requirement). The going concern requirement fully applicable in 2020 consists of:
- a minimum requirement of 8% of RWA and 3% of leverage exposure, and
- a buffer of (i) 4.86% of RWA and 1.5% of the leverage exposure, leading to a so-called base requirement of 12.86% of RWA and 4.5% of leverage exposure, and (ii) an additional buffer surcharge, which reflects the systemic importance.
In general, this requirement for systemically important banks must be met by CET1 capital, with up to 3.5% of RWA and 1.5% of the leverage exposure of the minimum requirement and up to 0.8% of RWA in the buffer permissible to be held in additional tier 1 capital instruments that would be converted into common equity or written down if the CET1 ratio falls below 7%. The gone concern requirement does not include any countercyclical buffers, which have to be held on top.
For systemically important banks operating internationally (GSIBs), such as Credit Suisse or UBS, additional requirements for loss-absorbing capacity apply. In addition to the above-mentioned going concern requirement, they must issue sufficient qualifying debt instruments to allow for restructuring without recourse to public resources (gone concern requirement, see below at Question 23.).
Furthermore, Swiss capital requirements provide for a supplemental counter-cyclical buffer of up to 2.5% of a bank's risk-weighted assets. Since 30 June 2014, the counter-cyclical buffer is set at 2% of a bank's risk-weighted assets pertaining to mortgage bonds that finance residential property in Switzerland. Effective July 1, 2016, Switzerland introduced the option of an extended countercyclical buffer, which is based on the BIS countercyclical buffer that could require banks to hold up to 2.5% of RWA in the form of CET1 capital.
Basel III framework with respect to regulatory capital is implemented in Turkey applicable to all banks irrespective of their type under the (i) the Regulation on Own Funds of Banks (“Regulation on Own Funds”); (ii) the Regulation on Capital Maintenance and Cyclical Capital Buffer; (iii) the Regulation on Calculation of Banks’ Liquidity Coverage Ratios; (iv) the Regulation on Measurement and Evaluation of the Capital Adequacy of Banks (“CM Regulation”) and (v) numerous communiques and guides on risk calculation and reduction methods with regards to credit, securitisation, operational, currency, market and country risks in line with Basel III framework.
In line with Basel III, the statutory capital adequacy standard ratio for equity capital of banks is 8%. Note that the BRSA has announced a higher target capital adequacy ratio of 12% and banks are expected to achieve and maintain a capital adequacy ratio that is higher than 12%. Additionally, banks shall maintain a minimum Tier I capital adequacy ratio of 6% and a minimum core capital (i.e. Common Equity Tier I capital) adequacy ratio of 4,5%. The BRSA is authorized to increase such ratios taking into consideration internal systems, assets and financial conditions of banks and to impose different capital adequacy ratios to different banks.
Furthermore, pursuant to the Regulation on the Internal Systems of Banks and Internal Capital Adequacy Assessment Process (the “ICAAP Regulation”), banks in Turkey are also required to implement an Internal Capital Adequacy Assessment Process (“ICAAP”) in order to internally calculate the capital adequate to cover the risks faced by banks and might be faced in the future by taking into consideration that bank’s risk profile, risk appetite and activities, and the volume and complexity of its transactions.
Basel Committee on Banking Supervision Regulatory Consistency Assessment Programme (“RCAP”) assessment team also determined and announced in its March 2016 report on assessment of Basel III risk-based capital regulations that Turkey is in compliance with the Basel risk-based capital standards with all underlying components following the last updates in the legislation took place in 2016.
The EU implemented the Basel III framework via the CRR / CRD IV, which contain a number of discretions for Member States in relation to national implementation.
For example, additional capital buffers with regard to Global Systemically Important Institutions (G-SII) and Other Systemically Important Institutions (O-SII) may be prescribed.
Yes, the Basel III legal framework is implemented in Bulgaria with respect to regulatory capital.
- Capital conservation buffer level: banks are required to maintain Common Equity Tier 1 (CET1), equal to 2.5% of the total amount of their overall risk exposure.
- Bank-specific countercyclical capital buffer: due to the lack of cyclical systemic risk in Bulgarian economy, the rate of this buffer is currently 0%.
- Systemic risk buffer is at the level of 3% of the risk-weighted exposures formed by Bulgarian banks.
- Buffer for global systemically important institutions - G-SII buffer is not applicable in Bulgaria.
- Buffer for other systemically important institutions (O-SII) - it is addressed below when replying to question No. 18.
Ecuador has implemented the main principles of the Basel III framework through resolutions issued by the Superintendence of Banks, those principles are: minimum capital, capital buffer, counter-cyclical buffer and level of leverage. They have been adapted to the structure of the financial statements of banks in Ecuador.
The Basel III framework is implemented by way of CRDIV. CRR requires: a capital conservation buffer (CCB) of common equity tier 1 (CET1) capital equal to 2.5% of total risk exposure (in addition to the minimum CET1 ratio of 4.5% of risk-weighted assets (RWA) to be maintained by all banks); and a coun-ter-cyclical capital buffer (CCyB) equivalent to an institution’s total risk exposure amount, subject to transitional arrangements set out in CRRI that allow for the period from 1 January 2018 to 31 December 2018:
(a) a CCB of CET1 capital equal to 1.875% of total risk exposure, and
(b) a CCyB of no more than 1.875% of a credit institution’s total risk exposure.
The provisions of the Capital Requirements Directive IV (CRD IV) have been transposed into French law by means of Ordinance n° 2014-158 of 20 February 2014, Decree n° 2014-1316 of 3 November 2014, and several ministerial orders of 5 November 2014.
- Minimum paid up capital requirements depend on categories of licenses as follows :between € 1 million and € 5 million depending on the banking license granted for credit institu-tions and finance companies;
- between € 50 000 and € 3 800 000 depending on the services provided for Investment com-panies;
- € 40 000 for payment institutions;
- € 350 000 for electronic money institutions.
The Basel III standards and guidelines have been implemented in the European Union by the CRD IV regulatory framework. The latter, however, foresees an implementation on a phased-in basis until 2019. Certain aspects with respect to regulatory capital are therefore still open to further implementation in Belgian legislation.
Estonia has not yet implemented the Basel III framework. Discussions on the subject of implementing Basel III into European Union banking regulations are still taking place, therefore Estonia has also not been able to implement the framework into national laws.
The Basel III framework on bank capital adequacy standards and requirements has been indeed transposed into the Greek legal order. Regulation 575/2013 (Capital Requirements Regulation) is directly applicable in Greece whereas Directive 2013/36/EU (Capital Requirements Directive IV) has been transposed through the enactment of Law 4261/2014.
Law 4261/2014 does not introduce any major deviations with respect to the Basel III regulatory capital requirements, as those are specified in the EU Capital Requirements framework.
The CRR, is directly applicable in Germany and Directive 2013/36/EU, ie the Capital Requirements Directive (CRD IV) has been implemented in Germany without significant deviation.
Yes, the US has implemented the Basel III framework with respect to regulatory capital. The Basel Committee on Banking Supervision assessed the US Basel III regulations and stated in its December 2014 report that it regards the US regulations implementing the Basel III framework to be largely compliant overall (though some deviations were identified).
BCBS, Regulatory Consistency Assessment Programme (RCAP) Assessment of Basel III regulations – United States of America (December 2014)
Along with many other countries in Latin America, Colombia has adopted Basel I, Basel II and Basel III recommendations in order to prevent a financial crisis and ensure a better risk management.
Specifically, Basel III framework was first enacted through Decree 1771 of 2012, which established equity adequacy requirements with a minimum of total solvency ratio of 9%, which is 1% above the recommended by the Basel Committee on Banking Supervision, and a minimum of core solvency ratio of 4.5%. The Decree also introduced new criteria for including basic ordinary equity, basic ordinary additional equity and additional equity, definitions for credit risk, market risk and operational risk in relation with credit institutions, standards for asset, risk and operation classification, as well as surveillance measures and possible sanctions that can be imposed by the Superintendence of Finance.
Furthermore, Decree 2392 of 2015 established new surveillance requirements by the Superintendence of Finance regarding credit institution’s basic ordinary equity, basic ordinary additional equity and additional equity classification. However it is not possible to state that the Colombian financial system has fully adopted Basel III recommendations, for the jurisdiction is still in the implementation process.
The Basel III requirements as to regulatory capital are included in Directive 2013/36/EU on capital requirements (Capital Requirements Directive IV) and the Capital Requirements Regulation. The Capital Requirements Directive was implemented in Finland through the enactment of the Finnish Act on Credit Institutions, which also mirrors the regulatory capital requirements of the Capital Requirements Regulation.
When the sufficiency of own funds in relation to the total risk exposure cannot be assured, the FFSA may impose an additional own fund capital requirement for a maximum of three years at a time.
The minimum capital requirement for credit institutions is EUR 5 million.
In addition to the core capital and consolidated core capital a credit institution must, in accordance with the Capital Requirements Regulation, have an additional amount for additional capital requirements. The total additional capital requirement consists of:
- a fixed additional capital amount;
- a fluctuating additional capital amount;
- a fluctuating systemic risk buffer; and
- additional capital requirements imposed on G-SIIs and O-SIIs.
The fixed additional capital amount is 2.5% of the total risk weight. The maximum of the fluctuating additional capital amount is 2.5% of the total risk weight determined by the FFSA for each credit institution separately. The fluctuating systemic risk buffer is determined by the FFSA and set between 1-5% of the consolidated risk weight.
The maximum additional capital requirement for G-SIIs is 3.5%, and for O-SIIs up to 2% of the total risk weight.
The majority of the Basel III framework has been implemented and is in force but there are certain aspects, including in relation to TLAC, large exposures and minimum capital requirements for market risk, that will come into force only in 2019.