Basel Committee examines CCBs

first_img Facebook LinkedIn Twitter Translating climate risks into financial risks takes work How should banks allocate capital for crypto? Related news OSFI seeks to step up sector’s cyber resilience Share this article and your comments with peers on social mediacenter_img These additional capital buffers are being introduced in the wake of the financial crisis as a way of guarding against a future crisis. The Basel Committee has established principles that regulators should follow in adopting these tools, but individual authorities have “considerable flexibility” in designing their particular policies. Among other things, Thursday’s report says there is variation among: > countries in terms of their governance structures; > indicators used to identify periods of excess credit and systemic risk; > the extent to which regulators rely on objective versus subjective criteria in making CCB decisions; and > the approach to communicating these decisions. For example, the paper notes that although most countries have established a set of metrics that they review when assessing credit growth and systemic risk, Canada and the U.S. do not specify a set of indicators in advance. Instead, they consider “a wide range of quantitative and qualitative information in forming their view of systemic risk,” the paper says. Additionally, it notes that Canada supplements this information with early warning models and stress tests. “The committee’s review highlights the importance of the implementation imperative of the Basel standards and helps to clarify implementation of domestic CCB policies,” the paper says. The paper also outlines some issues that, it says, “could be further discussed over the medium term as experience with the CCB policy is gained.” Keywords Banking industryCompanies ABC Funds, Basel Committee on Banking Supervision James Langton A report published by the Basel Committee on Banking Supervision examines the implementation of measures designed to trigger temporarily higher capital requirements in order to prevent the build-up of excess risk in the financial system. The report reviews how regulators in various countries have implemented so-called countercyclical capital buffers (CCBs), which are intended to help protect the banking sector from periods of excessive credit growth that have often been associated with rising systemic risk. last_img read more