Basel Committee announces consultative proposals to strengthen the resilience of the banking sector

December 17, 2009: At its 8–9 December meeting, the Basel Committee on Banking Supervision approved for consultation a package of proposals to strengthen global capital and liquidity regulations with the goal of promoting a more resilient banking sector. Along with the measures taken by the Committee in July 2009 to strengthen the Basel II Framework, the proposals announced today are part of the Committee’s comprehensive response to address the lessons of the crisis related to the regulation, supervision and risk management of global banks.

These reforms carry forward the 7 September 2009 mandate of the Governors and Heads of Supervision, the oversight body of the Basel Committee. The reform programme has also been endorsed by the Financial Stability Board and by the G20 leaders at their Pittsburgh Summit.

Mr Nout Wellink, Chairman of the Basel Committee and President of the Netherlands Bank, stated that “the capital and liquidity proposals will result in more resilient banks and a sounder banking and financial system. They will promote a better balance between financial innovation and sustainable growth”.

The Committee’s consultative documents cover the following key areas:

· Raising the quality, consistency and transparency of the capital base. This will ensure that the banking system is in a better position to absorb losses on both a going concern and a gone concern basis. In addition to raising the quality of the Tier 1 capital base, the Committee is also harmonising the other elements of the capital structure.

· Strengthening the risk coverage of the capital framework. In addition to the trading book and securitisation reforms announced in July 2009, the Committee is proposing to strengthen the capital requirements for counterparty credit risk exposures arising from derivatives, repos and securities financing activities. The strengthened counterparty capital requirements will also increase incentives to move OTC derivative exposures to central counterparties and exchanges. The Committee will also promote further convergence in the measurement, management and supervision of operational risk.

· Introducing a leverage ratio as a supplementary measure to the Basel II risk-based framework with a view to migrating to a Pillar 1 treatment based on appropriate review and calibration. The leverage ratio will help contain the build-up of excessive leverage in the banking system, and introduce additional safeguards against model risk and measurement error. To ensure comparability, the details of the leverage ratio will be harmonised internationally, fully adjusting for any remaining differences in accounting.


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