Discussion on balancing risk sensitivity, simplicity and comparability within the Basel capital standards initiated by the Basel Committee
July 8, 2013
The Basel Committee on Banking Supervision today released a Discussion Paper on the balance between risk sensitivity, simplicity and comparability within the Basel capital standards.
In response to the financial crisis, the Basel Committee introduced a
range of reforms designed to substantially raise the resilience of the
banking system against shocks. In addition to these reforms, during 2012
the Committee commissioned a small group of its members (the Task Force
on Simplicity and Comparability) to undertake a review of the Basel
capital framework. The goal of the Task Force was to identify
opportunities to remove undue complexity within the framework, and
improve the comparability of its outcomes. The creation of the Task
Force acknowledged that the framework has steadily grown over time as
risk coverage has been expanded and more sophisticated risk measurement
methodologies have been introduced.
The paper being released today discusses the reasons behind the
evolution of the current framework, and outlines the potential benefits
and costs that arise from a more risk sensitive methodology. The paper
also discusses ideas that could possibly be explored to further reform
the framework with the objective that it continues to strike an
appropriate balance between the complementary goals of risk sensitivity,
simplicity and comparability.
The purpose of the discussion paper is to seek views on this
critical issue so as to help shape the Committee's thinking. At this
stage, the Committee has not made a decision to pursue any of the ideas
presented; the paper is being published to elicit comments and feedback
from interested stakeholders, which will help the Committee refine its
thinking in this area. Furthermore, the Committee remains firmly of the
view that full, timely and consistent implementation of Basel III
remains fundamental to building a resilient financial system,
maintaining public confidence in regulatory ratios and providing a level
playing field for internationally active banks. Adopting the Basel III
reforms (higher and better quality capital, improved risk coverage,
capital buffers, and liquidity and funding requirements) in accordance
with the internationally-agreed transition period deadlines is itself an
important step in improving the consistency of bank regulation
Mr Stefan Ingves, Chairman of the Basel Committee and Governor,
Sveriges Riksbank said: "The Committee is keenly aware of the current
debate concerning the complexity of the current regulatory framework.
For that reason, the Committee set up a Task Force last year to look at
this issue in some depth. The Committee believes that it would benefit
from further input on this critical issue before deciding on the merits
of any specific changes to the current framework. The paper being
released today is designed to encourage discussion amongst, and solicit
views from, a broad set of stakeholders."
The Committee welcomes views on the issues outlined in this paper. Comments should be submitted by Friday 11 October 2013 by e-mail to firstname.lastname@example.org.
Alternatively, comments may be sent by post to: Secretariat of the
Basel Committee on Banking Supervision, Bank for International
Settlements, CH-4002 Basel, Switzerland. All comments may be published
on the website of the Bank for International Settlements unless a
respondent explicitly requests confidential treatment.