|
|
|
|
|
|
Basel ii Accord
Sections 40 to 49 |
Part 2: The First
Pillar ─ Minimum Capital
Requirements
I. Calculation of
minimum capital
requirements
40.
Part 2 presents the calculation of the total
minimum capital requirements for
credit,
market
and operational risk. The capital ratio is
calculated using the definition of
regulatory
capital
and risk-weighted assets.
The
total capital ratio must be no lower than 8%.
Tier
2 capital is limited to 100% of Tier 1
capital.
A.
Regulatory capital
41. The definition of
eligible regulatory capital, as outlined in the
1988 Accord
(11) and
clarified
in the 27 October 1998 press release on
“Instruments eligible for inclusion in Tier
1
capital”,
remains in place except for the modifications in
paragraphs 37 to 39 and 43.
(11)
The definition of Tier 3 capital as set out in
the Market Risk Amendment remains
unchanged.
42.
Under the standardised approach to credit risk,
general provisions, as explained
in
paragraphs
381 to 383, can be included in Tier 2 capital
subject to the limit of 1.25% of riskweighted
assets.
43.
Under the internal ratings-based (IRB) approach,
the treatment of the 1988
Accord
to
include general provisions (or general loan-loss
reserves) in Tier 2 capital is
withdrawn.
Banks
using the IRB approach for securitisation
exposures or the PD/LGD approach
for
equity
exposures must first deduct the EL amounts
subject to the corresponding conditions in
paragraphs 563 and 386, respectively.
Banks
using the IRB approach for other asset classes
must compare (i) the amount of total eligible
provisions, as defined in paragraph 380, with
(ii) the total expected losses amount as
calculated within the IRB approach and defined
in paragraph 375.
Where
the total expected loss amount exceeds total
eligible provisions, banks must deduct the
difference. Deduction must be on the basis of
50% from Tier 1 and 50% from Tier 2. Where the
total expected loss amount is less than total
eligible provisions, as explained in paragraphs
380 to 383, banks may recognise the difference
in Tier 2 capital up to a maximum of 0.6% of
credit risk-weighted assets. At national
discretion, a limit lower
than
0.6% may be applied.
B.
Risk-weighted
assets
44.
Total risk-weighted assets are determined by
multiplying the capital requirements
for
market
risk and operational risk by 12.5 (i.e. the
reciprocal of the minimum capital ratio
of
8%)
and adding the resulting figures to the sum of
risk-weighted assets for credit risk.
The
Committee will review the calibration of the
Framework prior to its implementation. It may
apply a scaling factor in order to broadly
maintain the aggregate level of minimum capital
requirements, while also providing incentives to
adopt the more advanced
risk-sensitive approaches of the
Framework.(12)
The
scaling factor is applied to the risk-weighted
asset
amounts for credit risk assessed under the IRB
approach.
12 The current best estimate of
the scaling factor using QIS 3 data adjusted for
the EL-UL decisions is 1.06. The final
determination of any scaling factor will be
based on the parallel calculation results which
will reflect all of the elements of the
framework to be
implemented.
C. Transitional
arrangements
45.
For banks using the IRB approach for credit risk
or the Advanced Measurement
Approaches
(AMA) for operational risk, there will be a
capital floor following
implementation
of
this Framework.
Banks
must calculate the difference between (i) the
floor as defined in paragraph 46 and (ii) the
amount as calculated according to paragraph 47.
If
the floor amount is larger, banks are required
to add 12.5 times the difference to
risk-weighted assets.
46.
The capital floor is based on application of the
1988 Accord. It is derived by
applying
an
adjustment factor to the following amount:
(i)
8% of the risk-weighted assets,
(ii)
plus Tier 1 and Tier 2 deductions,
and
(iii)
less the amount of general provisions that may
be recognised in Tier 2.
The
adjustment factor for banks using the foundation
IRB approach for the year beginning year-end
2006 is 95%. The adjustment factor for banks
using (i) either the foundation and/or advanced
IRB approaches, and/or (ii) the AMA for the year
beginning year-end 2007 is 90%, and for the year
beginning year-end 2008 is 80%.
The
following table illustrates the application of
the adjustment factors. Additional transitional
arrangements including parallel calculation are
set out in paragraphs 263 to
269.
13
The foundation IRB approach includes the IRB
approach to retail.
47.
In the years in which the floor applies, banks
must also calculate
(i)
8% of total riskweighted assets as calculated
under this Framework,
(ii)
less the difference between total provisions and
expected loss amount as described in Section
III.G (see paragraphs 374 to 386), and
(iii)
plus other Tier 1 and Tier 2 deductions. Where a
bank uses the standardised
approach
to credit risk for any portion of its exposures,
it also needs to exclude
general
provisions
that may be recognised in Tier 2 for that
portion from the amount
calculated
according
to the first sentence of this
paragraph.
48.
Should problems emerge during this period, the
Committee will seek to take
appropriate
measures to address them, and, in particular,
will be prepared to keep the
floors
in
place beyond 2009 if necessary.
49.
The Committee believes it is appropriate for
supervisors to apply prudential floors
to
banks
that adopt the IRB approach for credit risk
and/or the AMA for operational
risk
following
year-end 2008.
For
banks that do not complete the transition to
these approaches
in
the years specified in paragraph 46, the
Committee believes it is appropriate
for
supervisors
to continue to apply prudential floors — similar
to those of paragraph 46 — to
provide
time to ensure that individual bank
implementations of the advanced approaches
are
sound.
However,
the Committee recognises that floors based on
the 1988 Accord will
become
increasingly impractical to implement over time
and therefore believes that
supervisors
should have the flexibility to develop
appropriate bank-by-bank floors that
are
consistent
with the principles outlined in this paragraph,
subject to full disclosure of
the
nature
of the floors adopted. Such floors may be based
on the approach the bank was
using
before
adoption of the IRB approach and/or
AMA.
|
| | | |
|
Sarbanes Oxley
Training
Courses
designed to provide with the knowledge and skills needed to understand and
support Sarbanes-Oxley compliance.
www.sarbanes-oxley-training.com
Basel ii
Training
Courses
designed to provide with the knowledge and skills needed to understand and
support Basel ii compliance.
www.basel-ii-training.com
Sarbanes Oxley
Act
Sarbanes
Oxley Compliance: Books, Software, Certification, Training and
Resources.
www.sarbanes-oxley-act.biz
Basel ii Accord
Basel ii
Compliance: Books, Software, Certification, Training and
Resources
http://www.basel-ii-accord.com/
Compliance Training
Sarbanes
Oxley, Basel ii, Data Protection Directive, Information Security
Training
www.compliance-training.net
|
|