Basel III Opgelet De 2 presentaties volgen elkaar op.
Financieel Forum Waasland
Uitdagingen van Basel III
Jan Annaert Universiteit Antwerpen
[email protected]
12 juni 2012
Inleiding en overzicht • Waarom nieuwe regulering? • Waarom kapitaal? • Vorige regulering: Bazel I en II. - RWA. - Wat is kapitaal?
• Wat is nieuw in Bazel III? • Mogelijke gevolgen.
© Jan Annaert
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Waarom reglementering? Waarom is de banksector zo sterk gereglementeerd? • Centrale rol in het betaalsysteem. • Het belang van vertrouwen vertrouwenscrisis kan een massale opvraging van deposito’s impliceren. • Een bankcrisis kan kredietbeperking tot gevolg hebben. • Expliciete en/of impliciete depositogarantie.
© Jan Annaert
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Patronen voor de financiële crisis
IMF (2010)
© Jan Annaert
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2
Wat kwam boven drijven? • Inadequate kapitaalvereisten en standaarden. • Ontbreken van liquiditeitsregels. • Noodzaak aan toezicht op systeemrisico. • Noodzaak aan gedisciplineerde ontbindingsprocedure. • Inadequaat risicobeheer. • Problematische beloningssystemen. • Inadequate consumentenbescherming. © Jan Annaert
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Rol leverage Bank A
100 @ 6%
Bank B
95 @ 4% Kap: 5
NII = 6 – 3.8 = 2.2 ROA = 2.2/100 = 2.2% ROE = 2.2/5 = 44% Leverage = 100/5 =20
100 @ 6%
90 @ 4% Kap: 10
NII = 6 – 3.6 = 2.4 ROA = 2.4/100 = 2.4% ROE = 2.4/10 = 24% Leverage = 100/10 = 10
© Jan Annaert
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3
Rol kapitaal • Kapitaal is een buffer tegen verliezen. • Stel afboeking van 3% kredieten. Bank A
Bank B
95
97
97
90 Kap: 7
Kap: 2
© Jan Annaert
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Afnemende solvabiliteit
NBA (1863)
FDIC (1933)
Basel (1990)
Fed (1914)
Hanson, S.G., A.K. Kashyap, & J.C. Stein, 2011, “A macroprudential approach to financial regulation,” Journal of Economic Perspectives 25(1), 3-28. Berger, A.N., R.J. Herring, & G.P. Szegö, 1995, The role of capital in financial institutions, Journal of Banking and Finance 19(3-4), 393-430. © Jan Annaert
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Deleveraging of herkapitaliseren? Bank B
70
63 Kap: 7
97
90 Kap: 7
100
90 Kap: 10
• Probleem van ‘credit crunch’. • Probleem van ‘debt overhang’. • Probleem van systeemrisico. © Jan Annaert
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Hoge kost bankencrisis
International monetary Fund, 2011, United Kingdom: Stress Testing the Banking Sector Technical Note, IMF Country Report, International Monetary Fund, 11/227.
© Jan Annaert
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Regulering: Bazel I & II Basel Committee on Banking Supervision. • Forum om samenwerking op prudentieel toezicht te bevorderen. • 27 lidstaten. • Secretariaat in Bazel (BIB). • Afspraken, geen formele wetgevende macht.
© Jan Annaert
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Bazel I 1988 stabiliteit en level playing field: • Definitie van risico’s. - Risicogewichten. - RWA, incl. buitenbalansactiviteiten.
• Definitie van kapitaal. - Tier 1. - Tier 2. - (Tier 3.)
• Minimale ratio (Cooke ratio): 8%. • Krediet- en later (1996) marktrisico. © Jan Annaert
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Bazel II 1999-2004: • Krediet-, markt- en operationeel risico. • Drie pijlers: - Kapitaalvereisten. - Prudentieel toezicht en nazicht. - Marktdiscipline.
• Kapitaalvereisten = f(ratings). - Standaard. - Intern model.
© Jan Annaert
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Wat was er mis met Bazel II? • Leek te leiden tot lagere kapitaalvereisten hogere leverage. • Procyclicaliteit. • Ontbreken formele liquiditeitsregels. • Banking vs trading book arbitrage. • Te veel vertrouwen in interne modellen? • Te veel vertrouwen/belang voor de ratingbureaus. • Quid systeemrisico? • Kapitaalvereisten t.o.v. risico individuele leningen. © Jan Annaert
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Bedoelingen Bazel III • Verhogen kwaliteit, consistentie en transparantie kapitaalbasis. • Verhoging van de risicodekking. • Toevoeging van een leverage ratio. • Vermindering procyclicaliteit en bevorderen buffers. • Systeemrisico en verwevenheid aanpakken. • Liquiditeit bevorderen.
© Jan Annaert
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Wat is nieuw in Bazel III? • • • • •
Verhoging kapitaalvereisten. Definitie kapitaal. Leverage ratio: 3%. Maatregelen om procyclicaliteit tegen te gaan. Systeemrisico’s. • Systeeminstellingen. • OTC markten.
• Liquiditeitsratio’s.
© Jan Annaert
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Kapitaalvereisten Meer en beter 14% 12% 10% anticyclische buffer
8%
kapitaalinstandhoudingsbuffer Tier 2
6%
Tier 1 Aandelen
4% 2% 0% Nu
2013 2014 2015 2016 2017 2018 2019
Basel Committee on Banking Supervision, 2011, Basel III: A global regulatory framework for more resilient banks and banking systems - post BCBS meeting, 189.
© Jan Annaert
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© Jan Annaert
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IMF, Global Financial Stability Report, April 2011
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Liquiditeitsvereisten • Liquidity coverage ratio: - Liquiditeit op korte termijn. - Voldoende liquide activa om tegemoet te komen aan grote opvragingen?
• Net stable funding ratio: - Liquiditeit op langere termijn. - Voldoende stabiele financiering?
© Jan Annaert
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© Jan Annaert
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IMF, Global Financial Stability Report, April 2011
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Failure predictor?
IMF, Global Financial Stability Report, April 2011 © Jan Annaert
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Aandachtspunten • Verlagen van de bankrendabiliteit. - Is dit erg?
• Mogelijke deleveraging. - Dit is erg. Kan dit vermeden worden?
• Moeilijkere kredietverlening. - Is dit wel zo?
• Verplaatsing van activiteiten buiten de banksector. - Kan dit beheerst blijven?
© Jan Annaert
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Coördinaten Jan Annaert Departement Accounting & Financiering Universiteit Antwerpen & Antwerp Management School Prinsstraat 13 2000 Antwerpen
[email protected]
© Jan Annaert
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Introduction to Basel III Erlinde Van Wauwe Sint-Niklaas, 12-06-2012
ING Belgium – MRM ALM
Banking sector risk profile evolution Current risk profile will be challenged by our own ambition, by our own risk appetite and by current and forthcoming regulation Ambition & Business Model
Current Risk Profile
Future Risk Profile
Risk Appetite
•
Current & Forthcoming Regulation
With increasing constraints, resource allocation (capital, funding) becomes an ever more crucial and relevant, but also difficult, exercise. Introduction to Basel III
21-6-2012
2
Basel II
Introduction to Basel III
21-6-2012
3
Basel III Objectives
• Strengthen the global capital framework: – Raise the quality and consistency of the capital base – Enhance risk coverage – Supplement the risk-based capital requirement with a leverage ratio – Promote Countercyclical buffers – Address systemic risk
• Introduce a global liquidity standard – Liquidity Coverage Ratio – Net Stable Funding Ratio
Introduction to Basel III
21-6-2012
4
Regulatory constraints under Basel III
SOLVENCY
RISK BASED CAPITAL REQUIREMENT (core tier 1 ratio) : more stringent definition of capital and increasing risk weights for certain asset classes
LIQUIDITY
Constraints can be summarized in four categories :
LIQUIDITY (liquidity coverage ratio) : availability of sufficient buffers in the form of liquid assets to cover potential deposit outflow
NON-RISK BASED CAPITAL REQUIREMENT (leverage ratio): capping total balance sheet size and off-balance sheet items as a simple equally weighted multiple of capital
FUNDING (net stable funding ratio): availability of sufficient stable (long term) funding to finance the balance sheet
Introduction to Basel III
21-6-2012
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Risk Based Capital Requirement
Purpose: • •
Raise the quality, consistency and transparency of the capital base Enhance risk coverage
Definition: • minority capital only selectively recognised • intangibles (Goodwill, DTA, activated costs) deducted • net pension fund assets deducted • more strict rules in order for hybrids to qualify as capital
Total Capital 8%
• higher risk weight for trading book exposures • changes to counterparty credit risk (derivatives, repos, securities financing) • higher risk weight for financial institution counterparties
Risk Weighted Assets
2011 Monitoring
2013
2018
Parallel Run
Observation period Introduction to Basel III
21-6-2012
6
Risk Based Capital Requirement - Capital
Basel Committee has put forward a layered set of capital buffers and a migration path converging to a 2018 end state as follows : current regulatory minima
new regulatory minima (end state 2018)
capital conservation buffer (end state 2018)
countercyclical buffer (end 2018 - max 2.5%)
28 systemically important banks (1 - 2.5%)
2%
Core Tier 1 Ratio
Tier 1 Ratio
4%
6%
8%
10%
12%
14%
?
?
Total Capital Ratio
Introduction to Basel III
16%
?
21-6-2012
7
Risk Based Capital Requirement - Capital
Capital Buffers: • consist of core Tier 1 instruments (common equity, share surplus, retained earnings, revaluation reserves) • applied at consolidated level • penalty: restrictions on distributions like dividends, discretionary bonuses, share buy-backs.
Capital conservation buffer • available during stress periods to cover losses • 2.5% of RWA • Penalty : idem above
Countercyclical Buffer • Triggered by external macroeconomic factors affecting the sector (excessive credit growth, build-up of system-wide risks) • Range 0% to 2.5% of RWA (supervisory discretion)
Buffer for systemically important Financial Institutions (SIFIs) •28 SIFIs defined by Basel Committee (ING Group amongst them) •1 - 2.5% extra capital buffer
Introduction to Basel III
21-6-2012
8
Non- Risk Based Capital Requirement : Leverage Ratio
Purpose: • •
to constrain the build-up of leverage in the banking sector to reinforce the risk based requirements with a simple, non-risk based measure
Definition:
Tier 1 capital 3%
• deductions from Tier 1 not included here (DTA, goodwill…) • allows for partial netting of derivatives and specific provisions • off balance sheet included using stringent conversion factors
Total balance & off-balance sheet
2011 Monitoring
• Common equity • Reserves and retained earnings • Eligible revaluation reserves • Deductions – intangibles
2013
2018
Parallel Run
Observation period Introduction to Basel III
21-6-2012
9
Capital versus Leverage ratio
Capital Ratio
low rated ABS
trading book •mortgages financial institutions
high risk loans
DISFAVORS
FAVORS
•government bonds
Leverage ratio
mortgages government bonds Committed credit facilities
Unconditionally revocable facilities
Introduction to Basel III
21-6-2012
DISFAVORS
FAVORS
•high risk loans
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Liquidity : Liquidity Coverage Ratio
Purpose: to ensure a bank has sufficient high quality liquid resources to survive an acute market and bank-specific stress scenario lasting for 30 days
Definition: • Level 1 assets (100%): cash, Central Bank reserves, 0% risk government bonds, non-0% risk domestic government bonds • Level 2 assets (85 %): 20 % risk government bonds, high quality nonfinancial corporate and covered bonds
stock of high quality liquid assets
100 % net 30 days weighted cash outflow
Stress scenario (a bank specific and market wide shock) : • Partial loss deposits, depending on product and client • Loss of unsecured wholesale funding capacity • Extra drawings on committed credit and liquidity facilities
2011
2012
Mid 2013
QIS
1st report
Revisions
2015
Observation period Introduction to Basel III
21-6-2012
11
Liquidity : Liquidity Coverage Ratio
NBB stress ratio
LCR
(max. 100 %)
(min. 100 %)
Liquidity required
Liquid assets
Liquidity available
Net outflow
Introduction to Basel III
Differences
• Out of scope LCR : lions, bonds financial institutions, non eligible bonds, credit claims • LCR higher liquidity value for high quality eligible bonds
• Retail & SME deposits : LCR 5-10% – NBB 20% • Wholesale deposits : LCR 25-75-100% – NBB 100% • Unused committed lines : LCR 5-10-100% – NBB 15% • Retail & WHS credits : LCR 50% – NBB 100%
21-6-2012
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Liquidity : Liquidity Coverage Ratio
LCR versus NBB : RETAIL 2
8
2
4
2
Saving accounts 0
volume
Term loans 1
6
1
2
Current accounts 8
Unused lines 4
Term deposits
Overdrafts
0
0
10
20
30
40 outflow%
Introduction to Basel III
50 /
60
70
80
90
100
inflow%
21-6-2012
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Liquidity : Liquidity Coverage Ratio
LCR versus NBB : CORPORATE 9
Unused lines
volume
6
Current accounts Advance/Rollover 3
Overdrafts
Term deposits Term loans 0
0
20
40 outflow%
Introduction to Basel III
60 /
80
100
inflow%
21-6-2012
14
Funding : Net Stable Funding Ratio
Purpose: to ensure that assets that are not liquid or difficult to act as a source of extended liquidity, during a liquidity event lasting 1 year, are funded with a minimum amount of stable liabilities (mismatch maturity smaller)
Definition: Available Stable Funding
100 % Required Stable Funding
2011
2012
QIS
1st report
Liabilities that are a reliable source of funding in period of 1 year • capital & alike • deposits with 1 year maturities • Retained portion of non-maturity deposits and of deposits with < 1 year maturity in firm specific stress Stress scenario (a firm specific shock): • encumbered assets must be fully funded • required stable funding factor depends on persistency of assets • includes renewal assumptions for <1 year loans • is lower for low LTV mortgages • includes off balance sheet commitments
Mid 2016
2018
Revisions
Observation period Introduction to Basel III
21-6-2012
15
Funding : Net Stable Funding Ratio
Liabilities (available funding):
FAVORS
•Mono-client savings •Term deposits >1 year
• Wholesale savings Funding from FI
DISFAVORS
• Stable savings
•Issued LT debt
Assets (required funding):
• ST wholesale loans • Low LTV mortgages •High quality bonds
Introduction to Basel III
Credit facilities
21-6-2012
DISFAVORS
FAVORS
High LTV mortgages
• ST FI loans
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Liquidity – Mapping Reports
NBB
LCR
NSFR
1 week/1 month market & bank specific
30 days market & bank specific
1 Year bank specific
sufficient liquid buffer to cover net cash outflow most bonds with haircut depending on quality
sufficient high quality liquid buffer to cover net cash outflow only eligible high quality bonds
sufficient stable funding to cover (long term) assets high quality bonds, with haircut depending on quality
Partly Stable (20% run off on 1 month) no roll
Stable (5-10% run off on 30 days) 50 % roll
Stable (10-20% run off on 1 year) 65-85 % illiquide
deposits
100 % run off
50% run off
credits deposits
no roll 100 % run off
75 % run off (25% if operational relationship) 50 % roll 100 % run off (25% if operational relationship)
Horizon Stress scenario Purpose Bond porfolio Retail & SME deposits credits Midcorp Wholesale Financial institutions
credits Unused credit lines
no roll 15 % drawdown
Introduction to Basel III
no roll
50 % illiquide 100 % run off 0 % illiquide
5 - 10 - 100 % drawdown
21-6-2012
5 % drawdown
17
Liquidity: Consequences
LCR: • Increased need for high quality assets – Lower interest rates less profit – Concentration on government bonds
concentration risk
• Value of stable funding (e.g. cross selling, LT deposits …) NSFR: • Value of stable funding (Retail and/or Wholesale) – Appetite of clients for LT deposits is limited higher interest rates, less profit competition high, funding less stable
• Transfer from LT loans to ST loans – Less profit or higher prices for LT loans
Traditional role of a bank : transform ST savings into LT credits
Introduction to Basel III
21-6-2012
18
Maximising value under an increasing number of constraints
low rated ABS
mortgages
DISFAVORS
•government bonds
DISFAVORS
FAVORS
• New proposals do not leave a single BS item untouched
trading book •mortgages financial institutions
Mortgages • Mono-client savings • Government bonds Overdrafts credit facilities
• Stable savings
High LTV mortgages
• Mono-client savings • Term deposits >1 year
Funding from FI
mortgages • Government bonds
credit facilities
DISFAVORS
Introduction to Basel III
• Stable savings • Term deposits
DISFAVORS
• Constraints are there for industry as a whole and will impact pricing and competition for both loans and deposits
government bonds Committed credit facilities
FAVORS
• National regulatory discretion adds another dimension and layer of complexity to the optimisation process
•high risk loans
Unconditionally revocable facilities
FAVORS
• In contradiction with traditional role of bank = transform ST savings into LT credits
FAVORS
• Different constraints favour different product mixes
+ Local constraints
+ Market Impact & Market Potential
OPTIMAL BALANCE SHEET
21-6-2012
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Consequences for the customers
• Increased appetite from banks for long term deposits • Value of stable funding via cross selling • Transfer from LT loans to ST loans • Increase of interest costs due to higher cost of funding • Quality and amount of capital will be higher : consequences : new issues, less dividend, …
Introduction to Basel III
21-6-2012
20
The challenge : Find the equilibrium
Introduction to Basel III
21-6-2012
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Questions ?
Introduction to Basel III
21-6-2012
22
Thanks for your attention Erlinde Van Wauwe
ING Belgium – MRM ALM
