Basel Committee struggles to maintain its credibility due to heightened European regulatory sensitivities?
While the USA is in the process of scrapping Dodd-Frank regulations (2,300 pages of regulations, with more than 400 new rules and mandates) in the EU, there are recommendations for a new burst of international banking regulation. The great Basel-Committee that was lying flat after the finance and credit crisis has again revived with new rules. However, they are once again delaying the publication of the requirements that was due in January, indefinitely.
Status report from the Committee does not offer additional news about when the veil is lifted for the regulation, leaving many small and not in the mainstream banks and mortgage companies unaware of the future compliance demands.
Status report from the Basel Committee provides an assessment.
The Risk and Compliance staff of global banks are currently uncertain on the exact future requirements that can be derived from the current Basel recommendations. And the reports on the Trump administration's statements. Regulatory does not send a clear signal either.
The Basel Committee's credibility suffered a major setback in January 2017 after they had spent many years in the making of these recommendations. Perhaps it could have been the signals on scrapping the Dodd-Frank that is the reason to perform a proper review.
No date has been set for when the GHOS will discuss the Basel Committee's proposals, but March now looks like a strong possibility.
It is unclear why the Group of Central Bank Governors and Heads of Supervision (GHOS) postponed its discussion. Some indications are that there were concerns among EU banking supervisors that constraints on banks' use of internal models to calculate capital requirements would have a disproportionately negative impact on the leading European banks. European banks hold proportionately more assets – such as mortgage lending – on their balance sheets, for which the use of internal models produces a marked benefit compared with the application of standardised risk weightings.
Proposal In a 'leaked' memo provides some indications
It seems that the disagreement on one of the items in the new recommendations is popularly known as "output" -floor. It must limit the benefits that some banks are using their models to calculate the risk of their lending and thus the amount of money they must keep on equity to lend money.
Overall the Basel Committee's announcement indicates the commitment to reach a comprehensive agreement. However, they are forced to come up with some final recommendations that do not diverge too much from what has been indicated so far. The Governance Risk and Compliance staff of the financial institutions keep their fingers crossed that the final recommendations are realistic and like the thoughts that are aired by the Committee so far.
Some GRC officers hope that the Trump administration could pull the EU regulations to a more lighter direction as far as the number of regulatory compliance activities is concerned through direct deregulation, rolling back some of the already implemented controls, while others feel that the regulation that lies ahead will be more than what has already been implemented.
