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Basel III
New standards applicable to capital quality and ratios, capital buffers,
the capital treatment of counterparty credit risk and securitisation exposures,
leverage ratios and large exposure rules are a distant challenge in some jurisdictions,
but already a hard reality in others, notably the UK and Europe via the revisions to
the EU Capital Requirements Directive known as CRD II, CRD III and CRD IV.
All institutions of systemic importance - and in some jurisdictions all institutions,
irrespective of systemic importance - will ultimately need to deploy reverse stress-testing
and ‘resolution’ planning (also known as ‘living wills’).
But the biggest long-term impact of Basel III on most institutions, globally,
will undoubtedly be those new provisions governing the management
and measurement of liquidity risk.
The new Liquidity Coverage and Net Stable funding ratios and requirements,
and associated reporting, are only a part of the challenge.
Equally problematic, for many Tier2/3 banks with stretched GRC budgets
and ever-growing regulatory pressures, are the qualitative standards for
liquidity risk management, which demand a total rethink of the institution’s
policy-process-system infrastructure around liquidity risk.
Even allowing for the regulatory principle of ‘proportionality’,
adoption of disciplines such as pricing liquidity risk
(also referred to as funds transfer pricing or FTP), contingency funding planning
and liquidity buffer management will challenge many smaller banks.
KnowCo already has a strong pedigree in supporting client institutions in this area
in terms of both qualitative and quantitative liquidity regulations.
If you would like to explore practical and cost-effective ways of achieving
compliance with new regulatory challenges in your own institution,
please contact us now.
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