1 B as e l i i i C o m pl i ance Prof e s siona ls A s s o c i ation ( B iii C P A )

1. 1 BaseliiiComplianceProfessionalsAssociation(BiiiCPA) 1200GStreetNWSuite800Washington,DC20005-6705USATel:202-449-9750Web:www.basel-iii-association.com BaselIIINews,January2012 DearMember, Interesting!WehavethefirstimportantBaseliiitemplates. WewillstartwiththePost1January2018disclosuretemplate FromtheBISConsultativedocument,Definitionofcapitaldisclosurerequirements,Issuedforcommentby17February2012,December2011 Post1January2018disclosuretemplate ThecommontemplatethattheBaselCommitteehasdevelopedisdesignedtocapturethecapitalpositionsofbanksafterthetransition periodforthephasing-inofdeductionsendson1January2018 TheBaselCommitteeproposesthatbanksshouldpublishthecompleted disclosuretemplatewiththesamefrequencyasthepublicationoftheirfinancialstatements(typicallyquarterlyorhalfyearly). Furthermore,itisproposedthatthecompleteddisclosuretemplateshouldeitherbeincludedinthebank’spublishedfinancialreportsor,ataminimum,thesereportsshouldprovideadirectlinktothecompletedtemplateonthebank’swebsite. Banksshouldalsomakeavailableontheirwebsitesanarchiveofalltemplatesrelatingtopriorreportingperiods. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

2. 2 • Certainrowsareinitalics.Theserowswouldbedeletedafteralltheineligiblecapitalinstrumentshavebeenfullyphasedout(from1January2022onwards). • Regardingtheshading(below): • Eachdarkgreyrowintroducesanewsectiondetailingacertaincomponentofregulatorycapital. • Thelightgreyrowswithnothickborderrepresentthesumcellsintherelevantsection. • Thelightgreyrowswithathickbordershowthemaincomponentsof regulatorycapitalandthecapitalratios. Notes BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

3. 3 Notes BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

4. 4 Notes BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

5. 5 Notes BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

6. 6 Notes BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

7. 7 Notes BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

8. 8 Notes BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

9. 9 Notes BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

10. 10 Notes BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

11. 11 Notes BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

12. 12 Disclosuretemplateduringthetransitionphase TheproposedtemplateforuseduringthetransitionphaseisthesameasthesteadystatedisclosuretemplatesetoutinSection1exceptforthefollowingadditions(allofwhicharehighlightedinthetemplatebelowusingcellswithdottedbordersandcapitalisedtext): Anewcolumnhasbeenaddedforbankstoreporttheamountofeachregulatoryadjustmentthatissubjecttotheexistingnationaltreatmentduringthetransitionphase(labelledasthe“pre-BaselIIItreatment”). BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

13. 13 Example-Row8:In2014bankswillberequiredtomake20%oftheregulatoryadjustmentsinaccordancewithBaselIII. Considerabankwith“Goodwill,netofrelatedtaxliability”of$100mnandassumethatthebankisinajurisdictionthatdoesnotcurrentlyrequirethistobedeductedfromcommonequity. Thebankwouldreport$20mninthefirstofthetwoemptycellsinrow8andreport$80mninthesecondofthetwocells. ThesumofthetwocellswillthereforeequalthetotalBaselIIIregulatoryadjustment. Whilethenewcolumnshowstheamountofeachregulatoryadjustment thatissubjecttotheexistingnationaltreatment,itisnecessarytoshowhowthisamountisincludedunderexistingnationaltreatmentinthecalculationofregulatorycapital. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

14. 14 Therefore,newrowshavebeenaddedineachofthethreesectionsonregulatoryadjustmentstoalloweachjurisdictiontosetouttheirexistingnationaltreatment. Example-Betweenrows26and27: ConsiderajurisdictionthatcurrentlyfiltersoutunrealisedgainsandlossesonholdingsofAFSdebtsecuritiesandconsiderabankinthat jurisdictionthathasanunrealisedlossof$50mn. Thetransitionalarrangementsrequirethisbanktorecognise20%ofthisloss(ie$10mn)in2014. Thismeansthat80%ofthisloss(ie$40mn)isnotrecognised. Thejurisdictionwouldthereforeincludearowbetweenrows26and27 thatallowsbankstoaddbackthisunrealisedloss. Thebankwouldthenreport$40mninthisrowasanadditiontoCommonEquityTier1. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

15. 15 Example-Betweenrows41and42: AssumethatthebankdescribedinthebulletpointaboveisinajurisdictionthatcurrentlyrequiresgoodwilltobedeductedfromTier1. Thisjurisdictionwouldinsertanewrowinbetweenrows41and42,toindicatethatduringthetransitionphasesomegoodwillwillcontinuetobedeductedfromTier1(ineffectAdditionalTier1). The$80mnthatthebankhadreportedinthelastcellofrow8,wouldthen needtobereportedinthisnewrowinsertedbetweenrows41and42. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

16. 16 Example–Row60: TotakeaccountofthefactthattheexistingnationaltreatmentofaBaselIIIregulatoryadjustmentmaybetoapplyariskweighting,jurisdictionswouldalsobeabletoaddnewrowsimmediatelypriortotherowonriskweightedassets(row60). TheserowswouldneedtobedefinedbyeachjurisdictiontolisttheBaselIIIregulatoryadjustmentsthatarecurrentlyriskweighted. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

17. 17 Example:Considerajurisdictionthatcurrentlyriskweightsdefinedbenefitpensionfundnetassetsat200%andin2014abankhas$50mnoftheseassets. Thetransitionalarrangementsrequirethisbanktodeduct20%oftheassetsin2014. Thismeansthatthebankwillreport$10mninthefirstemptycellinrow15and$40mninthesecondemptycell(thetotalofthetwocellsthereforeequalsthetotalBaselIIIregulatoryadjustment). Thejurisdictionwoulddiscloseinoneoftheinsertedrowsbetweenrow59and60thatsuchassetsareriskweightedat200%duringthetransitionalphase. Thebankwouldthenreportafigureof$80mn($40mn*200%)inthatrow. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

18. 18 BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

19. 19 Financialstabilityandriskdisclosure KeynoteaddressbyMrJaimeCaruana,GeneralManageroftheBIS,totheFSBRoundtableonriskdisclosure,Basel,9December2011. Abstract High-qualityriskdisclosureisgoodformarkets,becauseithelpsinvestorsmakemoreinformeddecisions. Itisgoodforprudentialsupervisors,becauseitmakesbanksmoreaccountabletobothsupervisorsandinvestors. Anditisgoodforfinancialstability,becauseitreducesthechancethatunexpectedeventswilldisruptthesystem. Tobeeffectiveinpromotingmarketdiscipline,disclosuremustbecomplementedbystrongincentivesforcounterpartiestoengageinmonitoring. Thepublicsector'sroleinpromotingtransparencyarisesfromanumberofmarketfailures,includingtheexternalitiestobegainedfromcommonstandards,the"freerider"problemsthatmayleadtotoolittleinvestment inproducingandgatheringfinancialinformation,andthetendencyofmarketstooverreacttobadnewswhentheinformationenvironmentisclouded. Guidedbytheseconsiderations,theFinancialStabilityBoardandtheBaselCommitteeonBankingSupervisionhavelongsupportedimprovementsintransparency,throughtheirworkonaccounting,disclosuretemplatesandaggregatemarketdata. Atthesametime,industryandinvestorrepresentativesneedtoplayakeyroleindevelopingdisclosurestandards. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

20. 20 Accountingstandardsneedtoconverge,standardsforthediscussionandanalysisthataccompanyfinancialstatementsneedtobeestablished,andexternalauditorsneedtoinsistonhigher-qualityriskdisclosures. Fullspeech Goodmorning,andwelcometoBasel.Wearemeetingatatimeofgreatturbulenceanduncertaintyintheglobaleconomyandfinancialsystem. Butalthoughallofusarefocusedonimmediatechallengesandrisks,itisimportantnottolosesightoftheneedtocarryforwardourlonger-termagendatowardsbuildingabetter,strongerfinancialsystem. Yourdiscussionstodayareanessentialpartofmakingprogressonthisagenda. Ifwecanachieveasignificantimprovementinthequality,comparabilityandtimelinessofriskdisclosuresbyfinancialfirms,thiswillwithoutadoubthelpbreaktheviciouscyclesofcontagion,assetsalesandpullbackfromrisk-takingthathaveparalysedmarketsrepeatedlyoverthelastfewyears. ThethreepillarsofBaselIIcontinuetoguideoureffortstostrengthen financialregulationintheBaselIIIeraandbeyond. We'venowaccomplishedagreatdealonPillar1-minimumcapitalrequirements. ThetasknowistofollowthroughonPillar2bystrengtheningsupervisoryreview,withafocusonfirm-wideriskmanagementandriskgovernance,andonPillar3disclosures,byimprovingmarketdiscipline. AndwhilePillar3isagoodstepintherightdirection,achievingouroverallobjectiveofstrongermarketdisciplinewillrequireeffortsthatgobeyondstrictlyregulatoryapproaches. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

21. 21 Howdowepromotemarketdiscipline? First,weneedtomakesurethatthemarkethastheinformationitneeds. Andakeyelementofmarketinformationissound,consistentlyhigh-qualityriskdisclosures. Thatwillbethesubjectofmyremarks,andofcoursethethemeofyourdiscussionstoday. ButIshouldalsopointoutthatmarketdisciplineonlyworkswheninvestorshavetherightincentivestousetheinformation,andbankshavetherightincentivestotakeaccountofthesignalssentbythemarket. Fortheseincentivestoberight,theperceptionofapublicsafetynetforbanksthatare"toobigtofail"needstobeeliminated. ThispointstotherelevanceoftheworkbytheFSBandBaselCommitteetoreducemoralhazardbyincreasinglossabsorbency,strengtheningresolutionproceduresandenhancingsupervisoryintensityforsystemicallyimportantbanks. Ifwesuccessfullyfollowthroughonthiswork,theninvestorswillhavestrongerincentivestodevelopacomprehensivepictureoftherisksandexposuresfacingfinancialinstitutions,andthebanksshouldfacemorepressuretobeasaccurateandtransparentaspossibleabouttheseexposures. TheFSBandtheBaselCommitteehavelongsupportedsoundaccountingandrobustdisclosurestandardsandpractices. ExamplesincludetheriskdisclosuretemplateforstructuredcreditproductssetoutintheFinancialStabilityForum'sreporttotheG7in April2008,theBaselCommittee'sworkonPillar3disclosures,andthemorerecentworktoencouragesoundexpected-lossprovisioningrulesandrelateddisclosures. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

22. 22 Soundstandardsandpracticesenhancethequalityofinformationavailabletoinvestors,depositorsandothermarketparticipants,aswellastoprudentialauthoritiesandregulators-includingaboutriskexposures,riskmanagementpracticesandpolicies,governance,andcapitalmeasuresandratios. Thiscanleadtogreatertransparencythatcansupportmarketconfidence,improvemarketdisciplineandfacilitatesoundriskmanagementpracticesbyfinancialfirmsandothercompanies,andhasthepotentialtoleadtomoreconsistentpracticesovertime. Togetherwitheffectivesupervision,thesecanhelptofostersafeandsoundbankingsystemsandmorestablefinancialmarkets. Weshouldrecognisethelimitationstowhatimprovedinformationaboutriskscanachieve. Theeconomyandthefinancialsystemarealwayschangingandevolving,andourunderstandingofkeyrelationshipsstrugglestokeepup. Risksoftenappearpreciselyintheareastowhichmarketparticipantsand publicauthoritieshavepaidtheleastattention,andaboutwhichtheyhavedemandedtheleastaccurateinformation. Giventheselimitstoourunderstanding,weneedtobeprudent. Thismeansprotectingthesystemagainsttheunknownandunexpected,forexamplebystrengtheningcapitalandliquiditybuffersatinstitutionsandinitialmarginintradedmarkets. Nevertheless,strengthened,transparentdisclosureisgoodformarkets,becauseithelpsinvestorsmakemoreinformeddecisions. Itisgoodforprudentialsupervision,becauseithelpstomakebanksmoreaccountable,bothtosupervisorsandinvestors. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

23. 23 Anditisgoodforthestabilityofthesystemasawhole,becauseitreducesthechancethatunexpectedeventswillcausemajorsystem-widedisruptions. Weshouldnotforgetthattheofficialsectorhasadirectinterestin promotingfinancialstabilitythroughincreasedtransparency;theexperienceofthepastfouryearshasremindedusofthemanycoststhatapoorlyfunctioningfinancialsystemcanimposeontaxpayersandthereal economy. Onemightthinkthatmarketparticipantswouldnaturallyprovidecomprehensive,relevantdisclosureinatimelymanner,sinceit'sintheinterestofinvestors,counterpartiesandinstitutions.Butaswehaveseen,thisisoftennotthecase. Forexample,duringtheongoingturbulencerelatedtoEuropeansovereigndebt,investorsandmarketanalystshavestruggledtodevelopacomprehensiveandreliableassessmentoftheexposuresoffinancialinstitutionstotroubledsovereignsthroughbondholdingsandderivativespositions. Someofthedisruptionstobankfundingmarketshavereflectedscepticismastowhetherenoughisknownabouttheseexposures,aswellasthechainofexposuresrelatedtothem-banks'exposurestootherbanks,andsoon. WeattheBISregularlypublishinformationontheaggregateexposuresofnationalfinancialsystems,butofcoursethissaysnothingaboutthenetworkofexposuresofindividualinstitutions. Lackingadequateinformationtoinformtheirriskassessments,providersoffundshavenaturallypulledbackfromEuropeanfinancialfirmsofallsorts-intheprocessunderminingthestabilityofthesystemandputtingstillgreaterpressureonbanksandsovereigns. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

24. 24 Thissuggeststhepublicsectorhasakeyroleinpromotingmarkettransparency.Wheneveronesuggeststhepublicsectorshoulddosomething,it'sgoodpracticetoidentifythespecificmarketfailuresthatimpelpublicaction. Withrespecttoriskdisclosure,Iwouldemphasisethefollowingones. First,commonstandardshaveexternalities. Justaseveryonebenefitsfromcommonweightsandmeasuresinthephysicalworld,orfromcommonstandardsforelectronicmedialikeDVDencoding,there'sasocialbenefitfromfinancialstatementsfollowingasinglestandard,includingkeyconcepts,commondefinitionsandprinciples,and,totheextentpossible,commonformats. Insomecases,collaborativeeffortsbytheindustrycangeneratetheneededstandards;inothers,especiallywherethesubjectmatteriscomplexandthereisawiderangeofinterestedparties,someofwhommaynotsupportfull,timelytransparency,thepublicsectormustplayarole. Second,producingandgatheringfinancialinformationaresubjectto"freerider"problems. It'scostlytoproduce,interpretandanalyseinformationfromdisclosures.Butifoneinvestororcounterpartydoesso,pricesadjustandothersbenefitfromit.Sowhileinvestorscananddomakemoneyfromcarefullystudyingpubliclyavailableinformation,there'sstillanincentiveto"freeride"-towaitforsomeoneelsetogatherrelevantinformation,thentoshareinthebenefitbytradingonit. Andpreparersmayfacesimilarincentivestowaitforothersbeforeprovidingusefulinformationabouttheirriskexposuresandriskmanagementpractices. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

25. 25 Asaresult,everyoneinthemarketmayjustwatcheachother,insteadofmakingtheinvestmentinproducingandobtainingaccurateinformation.There'snowaytocompletelyeliminatesuchfree-ridingfrommarkets,butestablishingcommonstandardsgoespartway,byreducingthecosts-intime,effortandresources-neededtoproduceandacquire market-relevantinformation. Wewanttoseearicherarrayofinformationmadeavailablethatislesscostlytocollect,morewidelyavailabletomarketparticipants,moreusableandmorecomparable. Thisshouldhelptakeustowardsmarketswherepricesaremoved primarilybynewinformation,ratherthanbyherdbehaviour,leverageorsuddenshiftsinriskappetites. Third,iftheinformationenvironmentismurky,thenmarketsoverreacttobadnews. Wesawthisinthe2007-09crisis-wheneverproblemswerediscoveredinoneassetclass,oroneinstitution,investorsstartedtoscrutinisesimilarlyplacedassetsorinstitutions,anddowngradedtheirvaluationsofthem. Thissometimesledtoaself-fulfillingprocessthatmadethingsstillworse. Thesamehashappenedinsovereigndebtcrises,includingthecurrentchallengesinEurope-whenonecountrygetsintotrouble,investorsimmediatelylookaroundtoseewho'snext. Thiscreatesakindofcollectiveactionproblem-itmakessenseforeach playerindividuallytopullback,butwhenmanyplayersdothistheimpactisdevastatingforthemarketasawhole. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

26. 26 Greatertransparencyisonewaytohelpbreakthiscycle,bymakingitpossibleforinvestorstoseemorepreciselywhere,andwhether,theirconcernsarejustified. Sayingthereisapublicsectorroleinpromotingtransparency,forthereasonsI'vejustlaidout,isnotthesameassayingthatstrengtheningtransparencyisthepublicsector'sjobalone. Indeed,industryandinvestoreffortsneedtobeatthecentreofdevelopingstandards,sincethiswillensurethatnewrequirementshavethepropertechnicalgroundingandastrongbuy-inbymarketparticipants. Thepublicsectorcancontributebycatalysingprivatesectoreffortsand bydirectingthoseeffortsinfruitfuldirections. Atthesametime,however,iftheprivatesectordoesnotstepintoaddresstheseissuesadequately,supervisoryandregulatoryauthoritiesmayneedtoundertakefurtherreformstoimprovedisclosurestandardsandpractices. Alongsidethisworkatthefirmlevel,theinternationalcommunityhasalsobeenworkingtoimprovetransparencybystrengtheningthe collection,aggregationanddisseminationoffinancialsectordata. TheBIS,togetherwiththeCommitteeontheGlobalFinancialSystem,haslongperformedthisrolewithrespecttocross-borderbankingandOTCderivativesmarketactivity. Lookingforward,theFSBhasmadesubstantialprogressindevelopingadataframeworkthatfacilitatesmonitoringofkeyinterlinkagesamongthemajorglobalbanksinaconsistentmanner. Whilethisprojectisstillverymuchworkinprogress,itisnotablethat nationalauthoritiesandtheFSBareconsideringstoringandpoolingthe BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

27. 27 datacollectednationallyonaharmonisedbasisinacentralhub,proposedtobehostedbytheBIS. TheFSBandnationalsupervisorsarealsoworkingtomakesurethattheshiftofderivativesmarketactivitytocentraltradingandclearingplatformsleadstoagreateravailabilityofusefulmarket-leveldataonactivityintheseinstruments. Also,followingtheFSBrecommendationearlierthisyear,theFSB'sStandingCommitteeontheAssessmentofVulnerabilities,whichIchair,isalsoassessingwhethernewlyidentifiedriskscouldbenefitfromimprovedriskdisclosurepractices. Butevenasweworktoimprovetheassessmentofrisksandthe availabilityandqualityofaggregatedindustryandmarketdatathrougheffortsbytheofficialsector,strengtheneddisclosuresbyindividualinstitutionsstillofferthemostpromisingbenefitsintermsofstrengtheningfinancialstability. Goingforward,Iwouldemphasiseanumberofkeychallenges:FollowingthroughonconvergenceofIASBandFASBaccountingstandards,includingtheirriskdisclosurerequirements. Progressinconvergingthetwomaininternationalaccountingstandardsframeworkswillhelpensurethatuserscanmakemeaningfulcomparisonsacrossinstitutionsandentitiesoperatinginmultiplejurisdictions. Developingstandardsforthediscussionandanalysisthatfirmsprovidetocomplementthefiguresinthefinancialstatements. Commonstandardscanbeusefulnotonlyforfinancialdata,butalsofortheinterpretationsgiventothem. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

28. 28 Disclosuresoftenseektoprovideinformation"throughtheeyesofmanagement"thatreflectshoworganisationsmeasureandmanagetheirrisks. Whilethisapproachcanbehelpfulinunderstandingbusinessmodelsandriskmanagementpractices,itcanleadtodisclosureofinformationthatisnotcomparableacrossfirms,andthereforedifficultforinvestorsandregulatorybodiestoassess. Strengtheningthecontributionofexternalauditstothequalityofriskdisclosures. Whatisthedegreeofassurancethatauditorsprovideaboutpublic disclosures,includingthoseinfinancialstatements,managements'discussionandanalysissectionsoffinancialreports,andriskinformationontheirclients'websites? Towhatextent,andinwhatways,dotheyrevieworaudittheaccuracyandreliabilityofthefinancialreportsthattheyexamine,andhowdotheyreportontheirassessmentsandfindingstothepublic? Thesearedeepquestionsabouthowtobestevolvetheauditfunctionasfinancialsystemsandinvestorneedsevolve,andtheywon'tberesolvedovernight. Theyneedtobeaddressed,however,ifwearetoclarifyandtostrengthentheroleofauditorsinpromotingtransparencyatfirms. ThediscussionsattheFSBRoundtabletodaywillmarkimportantstepstowardsprogressinmanyoftheseareas. IamconfidenttheFSBanditsstandard-settingbodiesareuptothetask,andIencouragekeystakeholdersintheprivatesectortojointogethertoencourageandtosupportbetter,moretransparentriskdisclosurepractices. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

29. 29 Coreprinciplesforeffectivebankingsupervision BISConsultativedocument,December2011 TheBaselCommitteeonBankingSupervisionhasissuedforconsultationitsrevisedCoreprinciplesforeffectivebankingsupervision. TheconsultativepaperupdatestheCommittee's2006CoreprinciplesforeffectivebankingsupervisionandtheassociatedCoreprinciplesmethodology(assessmentmethodology). BoththeexistingCorePrinciplesandtheassociatedassessmentmethodologyhaveservedtheirpurposewellintermsofhelpingcountriestoassesstheirsupervisorysystemsandidentifyareasforimprovement. Whileconsciouseffortsweremadetomaintaincontinuityandcomparabilityasfaraspossible,theCommitteehasmergedtheCorePrinciplesandtheassessmentmethodologyintoasinglecomprehensivedocument. Therevisedsetoftwenty-nineCorePrincipleshavealsobeenreorganisedtofostertheirimplementationthroughamorelogicalstructure,highlightingthedifferencebetweenwhatsupervisorsdothemselvesandwhattheyexpectbankstodo: Principles1to13addresssupervisorypowers,responsibilitiesandfunctions,focusingoneffectiverisk-basedsupervision,andtheneedforearlyinterventionandtimelysupervisoryactions. Principles14to29coversupervisoryexpectationsofbanks,emphasisingtheimportanceofgoodcorporategovernanceandriskmanagement,aswellascompliancewithsupervisorystandards. ImportantenhancementshavebeenintroducedintotheindividualCorePrinciples,particularlyinthoseareasthatarenecessarytostrengthen supervisorypracticesandriskmanagement. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

30. 30 Variousadditionalcriteriahavebeenupgradedtoessentialcriteriaasaresult,whilenewassessmentcriteriawerewarrantedinotherinstances. Closeattentionwasgiventoaddressingmanyofthesignificantriskmanagementweaknessesandothervulnerabilitieshighlightedinthelastcrisis. Inaddition,thereviewhastakenaccountofseveralkeytrendsanddevelopmentsthatemergedduringthelastfewyearsofmarketturmoil:theneedforgreaterintensityandresourcestodealeffectivelywithsystemicallyimportantbanks;theimportanceofapplyingasystem-wide,macroperspectivetothemicroprudentialsupervisionofbankstoassistinidentifying,analysingandtakingpre-emptiveactiontoaddresssystemicrisk;andtheincreasingfocusoneffectivecrisismanagement,recoveryandresolutionmeasuresinreducingboththeprobabilityandimpactofabankfailure. TheCommitteehassoughttogiveappropriateemphasistotheseemergingissuesbyembeddingthemintotheCorePrinciples,asappropriate,andincludingspecificreferencesundereachrelevantPrinciple. Inaddition,soundcorporategovernanceunderpinseffectiveriskmanagementandpublicconfidenceinindividualbanksandthebankingsystem. Givenfundamentaldeficienciesinbanks'corporategovernancethatwereexposedinthelastcrisis,anewCorePrincipleoncorporategovernancehasbeenaddedinthisreviewbybringingtogetherexistingcorporategovernancecriteriaintheassessmentmethodologyandgivinggreateremphasistosoundcorporategovernancepractices. Similarly,theCommitteereiteratedthekeyroleofrobustmarketdisciplineinfosteringasafeandsoundbankingsystembyexpandinganexistingCorePrincipleintotwonewonesdedicatedrespectivelyto BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

31. 31 greaterpublicdisclosureandtransparency,andenhancedfinancialreportingandexternalaudit. Asaresultofthisreview,thenumberofCorePrincipleshasincreasedfrom25to29. Thereareatotalof36newassessmentcriteria,comprising31newessentialcriteriaand5newadditionalcriteria. Inaddition,33additionalcriteriafromtheexistingassessmentmethodologyhavebeenupgradedtoessentialcriteriathatrepresentminimumbaselinerequirementsforallcountries. TheBaselCommitteewelcomescommentsontherevisedCorePrinciples.CommentsshouldbesubmittedbyTuesday20March2012byemailto:baselcommittee@bis.org. Alternatively,commentsmaybesentbyposttotheSecretariatoftheBaselCommitteeonBankingSupervision,BankforInternationalSettlements,CH-4002Basel,Switzerland. AllcommentsmaybepublishedontheBankforInternationalSettlements'swebsiteunlessacommenterspecificallyrequestsconfidentialtreatment. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

32. 32 The29CorePrinciplesare:Supervisorypowers,responsibilitiesandfunctions Principle1–Responsibilities,objectivesandpowers:Aneffectivesystemofbankingsupervisionhasclearresponsibilitiesandobjectivesforeachauthorityinvolvedinthesupervisionofbanksandbankinggroups. Asuitablelegalframeworkforbankingsupervisionisinplacetoprovideeachresponsibleauthoritywiththenecessarylegalpowerstoauthorisebanks,conductongoingsupervision,addresscompliancewithlawsand undertaketimelycorrectiveactionstoaddresssafetyandsoundnessconcerns. Principle2–Independence,accountability,resourcingandlegalprotectionforsupervisors:Thesupervisorpossessesoperationalindependence,transparentprocesses,soundgovernanceandadequate resources,andisaccountableforthedischargeofitsduties. Thelegalframeworkforbankingsupervisionincludeslegalprotectionforthesupervisor. Principle3–Cooperationandcollaboration:Laws,regulationsorotherarrangementsprovideaframeworkforcooperationandcollaborationwithrelevantdomesticauthoritiesandforeignsupervisors. Thesearrangementsreflecttheneedtoprotectconfidentialinformation. Principle4–Permissibleactivities:Thepermissibleactivitiesofinstitutionsthatarelicensedandsubjecttosupervisionasbanksareclearlydefinedandtheuseoftheword“bank”innamesiscontrolled. Principle5–Licensingcriteria:Thelicensingauthorityhasthepowertosetcriteriaandrejectapplicationsforestablishmentsthatdonotmeetthecriteria. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

33. 33 Ataminimum,thelicensingprocessconsistsofanassessmentoftheownershipstructureandgovernance(includingthefitnessandproprietyofBoardmembersandseniormanagement)ofthebankanditswidergroup,anditsstrategicandoperatingplan,internalcontrols,riskmanagementandprojectedfinancialcondition(includingcapitalbase). Wheretheproposedownerorparentorgansationisaforeignbank,thepriorconsentofitshomesupervisorisobtained. Principle6–Transferofsignificantownership:Thesupervisorhasthepowertoreview,rejectandimposeprudentialconditionsonanyproposalstotransfersignificantownershiporcontrollinginterestshelddirectlyorindirectlyinexistingbankstootherparties. Principle7–Majoracquisitions:Thesupervisorhasthepowertoapproveorreject(orrecommendtotheresponsibleauthoritytheapprovalorrejectionof),andimposeprudentialconditionson,majoracquisitionsorinvestmentsbyabank,againstprescribedcriteria,includingtheestablishmentofcross-borderoperations,andtodeterminethatcorporateaffiliationsorstructuresdonotexposethebanktounduerisksorhindereffectivesupervision. Principle8–Supervisoryapproach:Aneffectivesystemofbankingsupervisionrequiresthesupervisortodevelopandmaintainaforward-lookingassessmentofCorePrinciplesforEffectiveBankingSupervisiontheriskprofileofindividualbanksandbankinggroups, proportionatetotheirsystemicimportance;identify,assessandaddressrisksemanatingfrombanksandthebankingsystemasawhole;haveaframeworkinplaceforearlyintervention;andhaveplansinplace,inpartnershipwithotherrelevantauthorities,totakeactiontoresolvebanks inanorderlymanneriftheybecomenon-viable. Principle9–Supervisorytechniquesandtools:Thesupervisorusesanappropriaterangeoftechniquesandtoolstoimplementthesupervisory BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

34. 34 approachanddeployssupervisoryresourcesonaproportionatebasis,takingintoaccounttheriskprofileandsystemicimportanceofbanks. Principle10–Supervisoryreporting:Thesupervisorcollects,reviewsandanalysesprudentialreportsandstatisticalreturnsfrombanksonbothasoloandaconsolidatedbasis,andindependentlyverifiesthesereports,througheitheron-siteexaminationsoruseofexternalexperts. Principle11–Correctiveandsanctioningpowersofsupervisors:Thesupervisoractsatanearlystagetoaddressunsafeandunsoundpracticesoractivitiesthatcouldposeriskstobanksortothebankingsystem. Thesupervisorhasatitsdisposalanadequaterangeofsupervisorytoolstobringabouttimelycorrectiveactions. Thisincludestheabilitytorevokethebankinglicenceortorecommenditsrevocation. Principle12–Consolidatedsupervision:Anessentialelementofbankingsupervisionisthatthesupervisorsupervisesthebankinggroupona consolidatedbasis,adequatelymonitoringand,asappropriate,applyingprudentialstandardstoallaspectsofthebusinessconductedbythebankinggroupworldwide. Principle13–Home-hostrelationships:Homeandhostsupervisorsofcrossborderbankinggroupsshareinformationandcooperateforeffectivesupervisionofthegroupandgroupentities,andeffectivehandlingofcrisissituations. Supervisorsrequirethelocaloperationsofforeignbankstobeconductedtothesamestandardsasthoserequiredofdomesticbanks. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

35. 35 Prudentialregulationsandrequirements Principle14–Corporategovernance:Thesupervisordeterminesthatbanksandbankinggroupshaverobustcorporategovernancepoliciesand processescovering,forexample,strategicdirection,groupandorganisationalstructure,controlenvironment,responsibilitiesofthebanks’Boardsandseniormanagement,andcompensation. Thesepoliciesandprocessesarecommensuratewiththeriskprofileandsystemicimportanceofthebank. Principle15–Riskmanagementprocess:Thesupervisordeterminesthatbankshaveacomprehensiveriskmanagementprocess(including effectiveBoardandseniormanagementoversight)toidentify,measure,evaluate,monitor,reportandcontrolormitigateallmaterialrisksonatimelybasisandtoassesstheadequacyoftheircapitalandliquidityinrelationtotheirriskprofileandmarketandmacroeconomicconditions. Thisextendstodevelopmentandreviewofrobustandcrediblerecoveryplans,whichtakeintoaccountthespecificcircumstancesofthebank. Theriskmanagementprocessiscommensuratewiththeriskprofileandsystemicimportanceofthebank. Principle16–Capitaladequacy:Thesupervisorsetsprudentandappropriatecapitaladequacyrequirementsforbanksthatreflecttherisksundertakenby,andpresentedby,abankinthecontextofthemarketsandmacroeconomicconditionsinwhichitoperates. Thesupervisordefinesthecomponentsofcapital,bearinginmindtheirabilitytoabsorblosses. Principle17–Creditrisk:Thesupervisordeterminesthatbankshavean adequatecreditriskmanagementprocessthattakesintoaccounttheirriskappetite,riskprofileandmarketandmacroeconomicconditions. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

36. 36 Thisincludesprudentpoliciesandprocessestoidentify,measure,evaluate,monitor,reportandcontrolormitigatecreditrisk(includingcounterpartycreditrisk)onatimelybasis. Thefullcreditlifecycleshouldbecoveredincludingcreditunderwriting,creditevaluation,andtheongoingmanagementofthebank’sloanandinvestmentportfolios. Principle18–Problemassets,provisionsandreserves:Thesupervisordeterminesthatbankshaveadequatepoliciesandprocessesfortheearlyidentificationandmanagementofproblemassets,andthemaintenanceofadequateprovisionsandreserves. Principle19–Concentrationriskandlargeexposurelimits:Thesupervisorsdeterminesthatbankshaveadequatepoliciesandprocessestoidentify,measure,evaluate,monitor,reportandcontrolormitigateconcentrationsofriskonatimelybasis. Supervisorssetprudentiallimitstorestrictbankexposurestosinglecounterpartiesorgroupsofconnectedcounterparties. Principle20–Transactionswithrelatedparties:Inordertopreventabusesarisingintransactionswithrelatedpartiesandtoaddresstheriskofconflictofinterest,thesupervisorrequiresbankstoenterintoanytransactionswithrelatedpartiesonanarm’slengthbasis;tomonitorthesetransactions;totakeappropriatestepstocontrolormitigatethe risks;andtowriteoffexposurestorelatedpartiesinaccordancewithstandardpoliciesandprocesses. Principle21–Countryandtransferrisks:Thesupervisordeterminesthatbankshaveadequatepoliciesandprocessestoidentify,measure,evaluate,monitor,reportandcontrolormitigatecountryriskandtransferriskintheirinternationallendingandinvestmentactivitiesonatimelybasis. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

37. 37 Principle22–Marketrisks:Thesupervisordeterminesthatbankshaveanadequatemarketriskmanagementprocessthattakesintoaccounttheirriskappetite,riskprofile,andmarketandmacroeconomicconditionsandtheriskofasignificantdeteriorationinmarketliquidity. Thisincludesprudentpoliciesandprocessestoidentify,measure,evaluate,monitor,reportandcontrolormitigatemarketrisksonatimelybasis. Principle23–Interestrateriskinthebankingbook:Thesupervisordeterminesthatbankshaveadequatesystemstoidentify,measure,evaluate,monitor,reportandcontrolormitigateinterestrateriskinthebankingbookonatimelybasis. Thesesystemstakeintoaccountthebank’sriskappetite,riskprofileandmarketandmacroeconomicconditions. Principle24–Liquidityrisk:Thesupervisorsetsprudentandappropriateliquidityrequirements(whichcanincludeeitherquantitativeorqualitativerequirementsorboth)forbanksthatreflecttheliquidityneedsofthebank. Thesupervisordeterminesthatbankshaveastrategythatenablesprudentmanagementofliquidityriskandcompliancewithliquidityrequirements. Thestrategytakesintoaccountthebank’sriskprofileaswellasmarketandmacroeconomicconditionsandincludesprudentpoliciesandprocesses,consistentwiththebank’sriskappetite,toidentify,measure,evaluate,monitor,reportandcontrolormitigateliquidityriskoveran appropriatesetoftimehorizons. Principle25–Operationalrisk:Thesupervisordeterminesthatbankshaveanadequateoperationalriskmanagementframeworkthattakesinto BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

38. 38 accounttheirriskappetite,riskprofileandmarketandmacroeconomicconditions. Thisincludesprudentpoliciesandprocessestoidentify,assess,evaluate,monitor,reportandcontrolormitigateoperationalriskonatimelybasis. Principle26–Internalcontrolandaudit:Thesupervisordeterminesthatbankshaveadequateinternalcontrolstoestablishandmaintainaproperlycontrolledoperatingenvironmentfortheconductoftheirbusinesstakingintoaccounttheirriskprofile. Theseincludecleararrangementsfordelegatingauthorityandresponsibility;separationofthefunctionsthatinvolvecommittingthebank,payingawayitsfunds,andaccountingforitsassetsandliabilities;reconciliationoftheseprocesses;safeguardingthebank’sassets;andappropriateindependentinternalauditandcompliancefunctionstotestadherencetothesecontrolsaswellasapplicablelawsandregulations. Principle27:Financialreportingandexternalaudit:Thesupervisordeterminesthatbanksandbankinggroupsmaintainadequateandreliablerecords,preparefinancialstatementsinaccordancewithaccountingpoliciesandpracticesthatarewidelyacceptedinternationallyandannuallypublishinformationthatfairlyreflectstheirfinancialconditionandperformanceandbearsanindependentexternalauditor’sopinion. Thesupervisoralsodeterminesthatbanksandparentcompaniesofbankinggroupshaveadequategovernanceandoversightoftheexternal auditfunction. Principle28–Disclosureandtransparency:Thesupervisordeterminesthatbanksandbankinggroupsregularlypublishinformationona consolidatedand,whereappropriate,solobasisthatiseasilyaccessibleandfairlyreflectstheirfinancialcondition,performance,riskexposures, BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

39. 39 riskmanagementstrategiesandcorporategovernancepoliciesandprocesses. Principle29–Abuseoffinancialservices:Thesupervisordeterminesthatbankshaveadequatepoliciesandprocesses,includingstrictcustomerduediligencerulestopromotehighethicalandprofessionalstandardsinthefinancialsectorandpreventthebankfrombeingused,intentionallyorunintentionally,forcriminalactivities. TheBaseliiiComplianceProfessionalsAssociation(BiiiCPA)isthelargestassociationofBaseliiiProfessionalsintheworld.ItisabusinessunitoftheBaseliiComplianceProfessionalsAssociation(BCPA),whichisalsothelargestassociationofBaseliiProfessionalsintheworld. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

40. 40 BaselIIISpeakersBureau TheBaseliiiComplianceProfessionalsAssociation(BiiiCPA)hasestablishedtheBaselIIISpeakersBureauforfirmsandorganizationsthatwanttoaccesstheBaseliiiexpertiseofCertifiedBaseliiiProfessionals(CBiiiPros). TheBiiiCPAwillbetheliaisonbetweenourcertifiedprofessionalsandtheseorganizations,atnocost.Westronglybelievethatthiscanbeagreatopportunityforboth,ourcertifiedprofessionalsandtheorganizers. Tolearnmore: www.basel-iii-association.com/Basel_iii_Speakers_Bureau.html CertifiedBaseliiiProfessional(CBiiiPro)DistanceLearningandOnlineCertificationProgram. TheCost:US$297 Whatisincludedinthisprice: Theofficialpresentationsweuseinourinstructor-ledclasses(1426slides) Youcanfindthecoursesynopsisat: www.basel-iii-association.com/Course_Synopsis_Certified_Basel_III_Professional.html Upto3OnlineExams Thereisonlyoneexamyouneedtopass,inordertobecomeaCertifiedBaseliiiProfessional(CBiiiPro).Ifyoufail,youmuststudyagaintheofficialpresentations,butyoudonotneedtospendmoneytotryagain.Upto3examsareincludedintheprice. BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com

41. 41 Tolearnmoreyoumayvisit: www.basel-iii-association.com/Questions_About_The_Certification_And_The_Exams_1.pdf www.basel-iii-association.com/Certification_Steps_CBiiiPro.pdf C.PersonalizedCertificateprintedinfullcolor. Processing,printingandpostingtoyourofficeorhome. TobecomeaCertifiedBaseliiiProfessional(CBiiiPro)youmustfollowthestepsdescribedat: www.basel-iii-association.com/Basel_III_Distance_Learning_Online_Certification.html BaseliiiComplianceProfessionalsAssociation(BiiiCPA)www.basel-iii-association.com