“When it comes to reform, ideas and implementation go together”
Stefan Ingves, chairman of the Basel Committee on Banking Supervision, feels that getting the technical details correct rather than new far-reaching ideas is taking an increasingly prominent place. January 30, 2013 | Stefan IngvesChange and reform – new ideas and new ways of doing things – can be challenging in good times. When all is well, the perceived need is low and the costs – including opportunity costs – are difficult to justify. Even small ideas can be difficult to implement. Crises, on the other hand, provide a catalyst for fundamentally rethinking past practices. Many banks have learnt this as a painful lesson in recent years: when times were good, potential operational, risk management and cultural deficiencies were not examined closely enough. When serious problems emerge, however, there is a demand for new ideas and new ways of doing things: the status quo becomes unacceptable. Of course, the same scenario has applied to the regulatory framework more broadly. Pre-crisis, any call for stronger capital and liquidity rules was generally howled down as burdensome and unnecessary. Post-2008, the costs of a weak regulatory framework have been all too obvious and painful for the banking sector, and as a result the demand for new ideas was immediate and forceful. Certainly, we needed to rethink the regulatory framework in light of what we have learnt from the past five years – the status quo was not acceptable. But if we want to be successful, the Committee also needs to make sure that the ideas we developed into Basel III are truly put into practice. From ideas …. The Basel Committee’s response to the financial crisis was to recognise that policy weaknesses contributed to the excesses that built up in the financial sector. A substantial overhaul was necessary: minor adjustments to the framework were not going to be enough. We needed some big, new far-reaching ideas. In summary, we decided that it was necessary to: • require banks to maintain substantially higher levels of capital, with the minimum common equity requirement increasing from 2% to 7% of risk weighted assets; • require banks to hold higher qual... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: Basel III, Regulation, Risk and Regulationbasel III,riskregulation,Risk and Regulation, Basel III,Regulation,Risk and Regulation, Keywords:BCBS, LCA, NSFR, G20, G-SIB, RCAP, Risk Weighted Assets BCBS, LCA, NSFR, G20, G-SIB, RCAP, Risk Weighted Assets
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