Basel Committee Announces Progress In Reform Program – Text

PARIS (MNI) – The Basel Committee Tuesday said it had taken a
series of steps towards finalizing its banking reform program, including
agreement on “key details” of the liquidity coverage ratio.

The Committee said it had published a report, prepared for the
meeting of G-20 finance ministers and central bank governors in
Gyeongju, South Korea, on its regulatory reform program in the wake of
the financial crisis.

Below is a verbatim text of the Basel Commitee’s press release:

The Basel Committee on Banking Supervision met today in Seoul,
South Korea, to work towards finalising its reform programme. The
Committee agreed on key details of the liquidity coverage ratio (LCR).
It confirmed that both the LCR and the net stable funding ratio will be
subject to an observation period and will include a review clause to
address any unintended consequences.

It also reviewed public comments received on its August 2010
“Proposal to Ensure the Loss Absorbency of Regulatory Capital at the
Point of Non-Viability” and agreed to finalise the proposal by year end.
Finally, the Committee agreed to release its report “Calibrating
Regulatory Minimum Capital Requirements and Capital Buffers: A Top-Down
Approach.”

The Committee will issue by year end detailed rules text setting
out all elements of the standards for both the capital and liquidity
requirements. At the conclusion of today’s meeting, the Basel Committee
also published a report on its comprehensive regulatory reform programme
to address the lessons of the crisis. The report was prepared for the
G20 Finance Ministers and Central Bank Governors meeting in Gyeongju,
South Korea on 22-23 October.

The Basel Committee’s response to the financial crisis, “Report to
the G20,” describes the measures taken by the Committee and its
governing body of Central Bank Governors and Heads of Supervision to
strengthen the resilience of banks and the global banking system. Mr
Nout Wellink, Chairman of the Basel Committee on Banking Supervision and
President of the Netherlands Bank, noted that “the Basel Committee
reforms address the identified weaknesses of the pre-crisis banking
sector, thus delivering on the G20 mandate given at the Pittsburgh
summit to develop a more resilient banking sector.”

Mr Wellink introduced the Committee’s G20 report at the conclusion
of today’s meeting in Seoul that was hosted by the Bank of Korea and
Korea’s Financial Supervisory Service. He expressed his gratitude for
“the strong Korean leadership of the G20, which has been critical to
maintaining the Committee’s momentum in completing its comprehensive
package in a timely manner.”

The new global standards to address both firm-specific and broader,
systemic risks have been referred to as “Basel III”. Basel III is
comprised of the following building blocks, which were agreed and issued
by the Committee and its governing body between July 2009 and September
2010:

–Higher quality of capital, with a focus on common equity, and
higher levels of capital to ensure banks can better absorb the types of
losses like those associated with this past crisis;

–Better coverage of risk, especially for capital market
activities;

–An internationally harmonised leverage ratio to constrain
excessive risk taking and to serve as a backstop to the risk-based
capital measure, with a view to migrating to a Pillar 1 treatment based
on appropriate review and calibration;

–Capital buffers, which should be built up in good times so that
they can be drawn down in periods of stress;

–Minimum global liquidity standards to improve banks’ resilience
to acute short term stress and to improve longer term funding;

–And stronger standards for supervision, public disclosures and
risk management.

The Basel Committee is also contributing to the Financial Stability
Board initiative to address the risks of globally systemic banking
institutions by developing approaches to identify them and ways to raise
their loss absorbing capacity, including work on capital surcharges,
contingent capital, and bail-in-able debt.

Mr Wellink added that “higher levels of capital, combined with a
global liquidity framework and more rigorous supervision will
substantially reduce the probability and severity of banking crises in
the future. This helps safeguard financial stability and economic growth
and reduces the exposure to the public sector and taxpayers.”

[TOPICS: M$$EC$,MM$$CR$,MGX$$$,MT$$$$,M$X$$$]

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