Revised Proposed Changes to Capital Requirements
In her International Banking column, Kathleen A. Scott discusses the Basel Committee's re-proposal of revisions to the international risk-based capital requirements using the Standardized Approach, after the committee reviewed comments to its 2014 proposal and analysis of a quantitative study regarding the impact of the original proposal on affected institutions.
January 12, 2016 at 10:00 PM
12 minute read
In my January 2015 column,1 I discussed December 2014 proposed revisions to the international risk-based capital requirements using the Standardized Approach. The proposed revisions were issued by the Basel Committee, which develops international capital standards. After review of the comments and analysis of a quantitative study regarding the impact of the proposal on affected institutions, the Basel Committee issued a re-proposal of the changes for comment on Dec. 10, 2015.2 Comments are due by March 21, 2016. This month's column will discuss highlights of the re-proposal.
Original Proposal
Under current Basel III capital standards, certain large banking organizations, with regulatory approval, can use their sophisticated internal risk-based models to determine the risk weight of their assets, called the Internal Ratings-Based Approach. The remaining banking organizations use the Standardized Approach. The standardized risk-based capital calculations as amended over the years are derived from the original risk-based capital standards issued in 1988.
The 2014 proposal and its December 2015 re-proposal represent one step by international banking regulators in a process to improve the consistency and comparability in banks' capital ratios by addressing what they see as excessive variability in risk-weighted asset calculations by banks using the authorized methods of calculating their risk-based capital.3
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