Global liquidity standard to go ahead in 2015. But some technical issues to be resolved. Banks still pushing for changes in EU regime By Melvyn Westlake

A package of new bank rules unveiled in the US aims to boost capital adequacy and liquidity, and reduce inter-connectedness

In this hundredth edition of the GRR newsletter, David Keefe looks back at nine years which saw an arcane subject become front-page news, and conventional wisdom deposed

‘Maximum harmonisation’ approach to Basel III adoption has divided member states. But Denmark is pushing ambitious plan

By Melvyn Westlake

As Denmark assumes the chief negotiating mantle for an array of crucial intra-EU issues, at the start of 2012, hopes are rising that a deal can be reached over controversial proposals for bank capital and liquidity reforms during the next few weeks. Differences between the European Commission’s demand for a “maximum harmonisation” approach, and the desire of some EU member countries to hike capital requirements above the proposed ceiling, still look difficult to reconcile.   More>>>

MUMBAI – Implementation of Basel III by banks in India will be more stringent than in most developed economies, both in the level of capital that will be required and in the speed of transition to the new regime. But critics are worried that this will slow the country’s growth.

The Reserve Bank of India (RBI), the central bank, unveiled its draft guidelines for adopting the new global capital standard crafted by the Basel Committee, at the end of December. Under draft guidelines, which are issued for public consultation, banks will have to hold common equity Tier 1 that is at least equal to 5.5% of risk-weighted assets. This compares with 4.4% under the global Basel III agreement. Total Tier 1 must be at least 7% (against 6%) and total capital must be 9% (against 8%).   More>>>

A selection of news items generated by the American regulatory reform agenda

BEIJING – China's banking watchdog has decided to postpone implementation of the internationally-agreed Basel III capital and liquidity rules for banks according to local newspaper reports. The news comes amid increasing concerns about the country’s slowing economy.

One report in the Economic Information Daily in mid-December said the postponement was indefinite, according to Reuters newswire. Another report said that a source familiar with China's banking regulations told the Chinese-language 21st Century Business Herald that the implementation of the Chinese version of Basel III will be delayed from January to the second half of 2012.    More>>>

MANILA – Universal and commercial banks in the Philippines have been told they must adopt the Basel III capital adequacy standards within two years. The announcement was made in early January by the country’s central bank, Bangko Sentral ng Pilipinas (BSP). It said: “The Monetary Board decided to adopt the capital adequacy standards in full by January 2014 without recourse to a staggered implementation or a gradual phase-out of ineligible capital instruments. This recognises the present strong capital position of the banking industry while providing for a reasonable transition period.”

Under the new global Basel III standard, the transition for fully implementing the rules stretches to the end of 2018, to allow internationally-active banks time to raise capital organically.    More>>>

LONDON – The financial turmoil centred on Europe’s sovereign debt crisis must not slow down collective efforts towards achieving global accounting standards, according to the world’s top accounting-standards watchdog.

FRANKFURT – A clue to where the European Central Bank (ECB) stands on one of the key rows provoked by the Capital Requirements Regulation comes in the Bank’s latest Financial Stability Review. The Capital Requirements Regulation and the associated Capital Requirements Directive (together CRD IV/CRR I) will transpose the Basel III capital and liquidity reforms in to EU law. The hotly debated question is how closely the proposed legislation does – or should – follow the standard crafted by international regulators on the Basel Committee.

One key difference is that the 7% common equity Tier 1 capital adequacy ratio proposed in the global Basel III is intended purely as a minimum requirement for banks. But the European Commission legislation says it must be both a minimum and a ceiling. That is necessary in order for it to conform to the Commission’s maximum harmonisation approach to rulemaking and to create a single rule-book for the single financial market. In contrast, some countries, notably Britain, Sweden and Spain, want to be able to hike equity capital requirements above 7% to address the systemic risks that some banks pose.   More>>>

BRUSSELS – A forceful defence of the single rulebook for the EU financial sector was made in early December by Andrea Enria, chairman of the year-old European Banking Authority (EBA), the pan-EU supervisory watchdog. But he worried that support for the single rule-book concept was already “faltering.”

BASEL - Global regulators are calling for private-sector experts to join a panel advising regulators on the so-called Legal Entity Identifier (LEI) project backed by world leaders.

Leaders of the Group of Twenty (G20) largest economies called at their November summit in Cannes, France for the creation of a global LEI which uniquely identifies parties to financial transactions.    More>>>

BASEL – Top US insurance regulator Therese Vaughan has been appointed chair of the Joint Forum of global banking, insurance and securities market supervisors for two years, effective January 1.

The Joint Forum handles issues common to the three financial sectors. Its parent organisations are the three international standard-setting bodies for banking, insurance and securities markets, respectively the Basel Committee of global banking supervisors, the International Association of Insurance Supervisors, and the International Organisation of Securities Commissions.   More>>>

BASEL – In an effort to close regulatory gaps and eliminate supervisory “blind spots,” the Joint Forum has updated its principles for overseeing financial conglomerates. It wants to ensure effective supervision of risks arising from unregulated financial activities and entities. In a consultation paper issued in mid-December*, the Joint Forum says the financial crisis that erupted in 2007 exposed situations in which regulatory requirements and oversight did not fully capture all the activities of financial conglomerates or fully consider the impact and cost that these activities may pose to the financial system.

The principles set out in the paper, which expand and supplement those first elaborated in 1999, address “complexities and gaps resulting from cross-sectoral activities with a scope of application based on a revised and broader definition of a financial conglomerate.”   More>>>

LONDON – Europe’s insurers must urgently tackle the risk management and reporting requirements of the upcoming Solvency II regime, BNP Paribas Securities Services head of insurance, Maxime Gibault said in January.

He was commenting on the results of a survey of European insurers which showed they had made a lot of progress towards gathering the quantitative requirements of Solvency II, which aims to bolster the safety of the European Union’s 5,000 insurers and reinsurers when it comes into effect in January 2014. Solvency II embodies a three-pillar framework of capital requirements (Pillar 1), supervisory review (Pillar 2), and market discipline (Pillar 3).   More>>>

BRUSSELS - The European Commission launched a review of the structure of banking in the EU as GRR went to press, a move that follows on the heels of Britain's radical plan to ring-fence the assets of savers against losses from risky investment banking.

MUSCAT, Oman – Uncertainty about the finalisation of a rule on accounting for financial instruments and about its convergence with US standards is the biggest challenge facing India’s banks as the country transitions to international accounting rules, a top Indian central banker said in December.

The remarks by Reserve Bank of India (RBI) deputy governor Anand Sinha highlighted the difficulties that leading emerging economies are having with implementing International Financial Reporting Standards (IFRS), the international accounting rules that are accepted in more than 100 countries, including the 27 member states of the European Union but not yet in the United States. Adoption of IFRS by all major economies is seen as crucial to achieving the goal of a single set of global accounting rules called for the Group of Twenty (G20) biggest economies, which includes India. Accounting experts have said the US delay in deciding whether to adopt IFRS, and delays in the separate but related programme to converge US Generally Accepted Accounting Principles (US GAAP) with IFRS, are causing countries like India to put off implementing the international rules.    More>>>

BASEL – Big questions must be tackled if regulators are to strengthen the role of auditors in promoting more transparent risk disclosure at financial firms, according to a top global regulator.

Bank for International Settlements (BIS) general manager Jaime Caruana said strengthening the contribution that external auditors, the people who check the honesty and fairness of financial statements, make to the quality of risk disclosures is one of the key challenges facing regulators seeking to improve significantly the quality, comparability and timeliness of risk disclosures by financial firms. Significant improvement of these factors would “without a doubt help break the vicious cycle of contagion, asset sales and pullback from risk-taking that have paralysed markets repeatedly over the last few years,” he told a Financial Stability Board (FSB) roundtable on risk disclosure in December.`   More>>>

Board determined to maintain pressure on laggardly reform implementation; Hildebrand post might not be filled

As Congress awaits key report, insurers seek action from new federal body but want state-based regulation kept intact

But there was strong backing for maintaining the existing system, under which the insurance business is regulated individually by the 56 states and territories of the United States, while its acknowledged deficiencies are also tackled. The case for allowing firms the option of being regulated by a federal agency was argued forcefully but appeared confined to a minority of the more than 140 responses to the call for public input into the preparation of the report.    More>>>

Industry warns of dangers if America doesn’t cooperate with global bodies on defining non-bank systemic risk

Perceptions of risks to the financial system could be distorted if US regulators don’t coordinate their efforts to identify systemically risky non-bank financial firms with work being done at the international level, according to a leading insurance industry body.    More>>>

Key standard-setters agree on bad loan and offsetting rules, but G20 hopes for global accounting target remain elusive

Achieving the convergence this year of US and international accounting rules that’s so desired by world leaders looks as difficult as ever, despite a breakthrough on the thorny problem of getting banks to disclose loan losses sooner.

“Key accounting standards are taking much longer to develop than we expected, and the complexities of international standard development are becoming very obvious,” says PricewaterhouseCoopers (PwC) global chief accountant John Hitchins.   More>>>