Basel III. Opgelet De 2 presentaties volgen elkaar op.

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1 Basel III Opgelet De 2 presentaties volgen elkaar op.

2 Financieel Forum Waasland Uitdagingen van Basel III Jan Annaert Universiteit Antwerpen 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. 2 1

3 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. 3 Patronen voor de financiële crisis IMF (2010) 4 2

4 Wat kwam boven drijven? Inadequate kapitaalvereistenen standaarden. Ontbreken van liquiditeitsregels. Noodzaakaantoezichtop systeemrisico. Noodzaak aan gedisciplineerde ontbindingsprocedure. Inadequaat risicobeheer. Problematische beloningssystemen. Inadequate consumentenbescherming. 5 Rol leverage 6% Bank A 4% Kap: 5 NII = = 2.2 ROA = 2.2/100 = 2.2% ROE = 2.2/5 = 44% Leverage = 100/5 =20 6% Bank B 4% Kap: 10 NII = = 2.4 ROA = 2.4/100 = 2.4% ROE = 2.4/10 = 24% Leverage = 100/10 =

5 Rol kapitaal Kapitaal is een buffer tegen verliezen. Stel afboeking van 3% kredieten. Bank A Bank B Kap: 2 Kap: 7 7 Afnemende solvabiliteit NBA (1863) FDIC (1933) Basel (1990) Fed (1914) Hanson, S.G., A.K. Kashyap, & J.C. Stein, 2011, A macroprudentialapproach to financial regulation, Journal of Economic Perspectives 25(1), 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),

6 Deleveraging of herkapitaliseren? 97 Bank B Kap: 7 Kap: Kap: 10 Probleem van credit crunch. Probleem van debt overhang. Probleem van systeemrisico. 9 Hoge kost bankencrisis International monetary Fund, 2011, United Kingdom: Stress Testing the Banking Sector Technical Note, IMF Country Report, International Monetary Fund, 11/

7 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. 12 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. 13 6

8 Bazel II : Krediet-, markten operationeel risico. Drie pijlers: - Kapitaalvereisten. - Prudentieel toezicht en nazicht. - Marktdiscipline. Kapitaalvereisten = f(ratings). - Standaard. - Intern model. 14 Watwas ermismet BazelII? 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. 15 7

9 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. 16 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. 17 8

10 Kapitaalvereisten Meer en beter 14% 12% 10% 8% 6% 4% anticyclische buffer kapitaalinstandhoudingsbuffer Tier 2 Tier 1 Aandelen 2% 0% Nu Basel Committee on Banking Supervision, 2011, Basel III: A global regulatory framework for more resilient banks and banking systems - post BCBS meeting, IMF, Global Financial Stability Report, April

11 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? 20 IMF, Global Financial Stability Report, April

12 Failure predictor? IMF, Global Financial Stability Report, April Aandachtspunten Verlagen van de bankrendabiliteit. - Is diterg? Mogelijke deleveraging. - Ditis erg. Kan ditvermedenworden? Moeilijkere kredietverlening. - Is ditwelzo? Verplaatsing van activiteiten buiten de banksector. - Kan dit beheerst blijven? 23 11

13 Coördinaten Jan Annaert Departement Accounting & Financiering Universiteit Antwerpen & Antwerp Management School Prinsstraat Antwerpen 24 12

14 Erlinde Van Wauwe Sint-Niklaas, ING Belgium MRM ALM

15 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

16 Basel II

17 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

18 Regulatory constraints under Basel III Constraints can be summarized in four categories : SOLVENCY RISK BASED CAPITAL REQUIREMENT (core tier 1 ratio) : more stringent definition of capital and increasing risk weights for certain asset classes 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 LIQUIDITY LIQUIDITY (liquidity coverage ratio) : availability of sufficient buffers in the form of liquid assets to cover potential deposit outflow FUNDING (net stable funding ratio): availability of sufficient stable (long term) funding to finance the balance sheet

19 Risk Based Capital Requirement Purpose: Raise the quality, consistency and transparency of the capital base Enhance risk coverage Definition: Total Capital Risk Weighted Assets 8 % 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 higher risk weight for trading book exposures changes to counterparty credit risk (derivatives, repos, securities financing) higher risk weight for financial institution counterparties Monitoring Parallel Run Observation period

20 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 max 2.5%) 28 systemically important banks (1-2.5%) 2% 4% 6% 8% 10% 12% 14% 16% Core Tier 1 Ratio? Tier 1 Ratio? Total Capital Ratio?

21 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

22 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 Total balance & off-balance sheet 3 % Common equity Reserves and retained earnings Eligible revaluation reserves Deductions intangibles 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 Monitoring Parallel Run Observation period

23 Capital versus Leverage ratio Capital Ratio FAVORS government bonds trading book mortgages financial institutions low rated ABS high risk loans DISFAVORS Leverage ratio FAVORS high risk loans Unconditionally revocable facilities mortgages government bonds Committed credit facilities DISFAVORS

24 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: stock of high quality liquid assets net 30 days weighted cash outflow 100 % 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 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 Mid QIS 1st report Revisions Observation period

25 Liquidity : Liquidity Coverage Ratio NBB stress ratio LCR Differences (max. 100 %) (min. 100 %) Liquidity required Liquidity available Liquid assets Net outflow 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 % NBB 100% Unused committed lines : LCR % NBB 15% Retail & WHS credits : LCR 50% NBB 100%

26 Liquidity : Liquidity Coverage Ratio LCR versus NBB : RETAIL Saving accounts Term loans volume Current accounts Unused lines Term deposits Overdrafts outflow% / inflow%

27 Liquidity : Liquidity Coverage Ratio LCR versus NBB : CORPORATE Unused lines volume Advance/Rollover Current accounts Term loans Term deposits Overdrafts outflow% / inflow%

28 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 Required Stable Funding 100 % 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 QIS 1st report Revisions Observation period

29 Funding : Net Stable Funding Ratio Liabilities (available funding): FAVORS Issued LT debt Term deposits >1 year Stable savings Mono-client savings Wholesale savings Funding from FI DISFAVORS Assets (required funding): FAVORS ST FI loans High LTV mortgages ST wholesale loans Low LTV mortgages High quality bonds Credit facilities DISFAVORS

30 Liquidity Mapping Reports Horizon Stress scenario NBB LCR NSFR 1 week/1 month 30 days 1 Year market & bank specific market & bank specific bank specific Purpose Bond porfolio Retail & SME deposits Midcorp Wholesale Financial institutions Unused credit lines sufficient liquid buffer to cover net cash outflow most bonds with haircut depending on quality Partly Stable (20% run off on 1 month) sufficient high quality liquid buffer to cover net cash outflow only eligible high quality bonds Stable (5-10% run off on 30 days) sufficient stable funding to cover (long term) assets high quality bonds, with haircut depending on quality Stable (10-20% run off on 1 year) credits no roll 50 % roll % illiquide deposits 100 % run off 75 % run off 50% run off (25% if operational relationship) credits no roll 50 % roll 50 % illiquide deposits 100 % run off 100 % run off (25% if operational relationship) 100 % run off credits no roll no roll 0 % illiquide 15 % drawdown % drawdown 5 % drawdown

31 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

32 Maximising value under an increasing number of constraints New proposals do not leave a single BS item untouched FAVORS government bonds trading book mortgages financial institutions low rated ABS DISFAVORS Different constraints favour different product mixes FAVORS high risk loans Unconditionally revocable facilities mortgages government bonds Committed credit facilities DISFAVORS In contradiction with traditional role of bank = transform ST savings into LT credits National regulatory discretion adds another dimension and layer of complexity to the optimisation process Constraints are there for industry as a whole and will impact pricing and competition for both loans and deposits FAVORS FAVORS Term deposits Government bonds Term deposits >1 year Government bonds Stable savings Stable savings Mono-client savings mortgages Mono-client savings credit facilities Mortgages High LTV mortgages credit facilities Overdrafts Funding from FI + Local constraints + Market Impact & Market Potential OPTIMAL BALANCE SHEET DISFAVORS DISFAVORS

33 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,

34 The challenge : Find the equilibrium

35 Questions?

36 Thanks for your attention Erlinde Van Wauwe ING Belgium MRM ALM