- Capital adequacy level to be announced soon — "We think an announcement regarding the Basel III capital adequacy standard and transition period will come early next week. We expect a detailed outline early in October, at which time we intend to issue an amended report."
- Significant revisions — "International agreements on banking regulations, hammered out in Basel, undergo major revisions in roughly 10-year cycles. This round (Basel III) will likely change the framework of banking regulations more than ever before."
- Restrictions on leverage — "In addition to capital quality and volume requirements, regulations where risk assets are the denominator will necessitate securing an additional capital buffer when the economy is recovering. Simple leverage (not based on risk weights) will also need to be made sufficient, so it will become harder to increase capital efficiency via leverage."
- Stabilizing financing — "New regulations regarding liquidity will be added, which will look at whether banks 1) are fully prepared for a short-term capital outflow and 2) can maintain stable financing over the long term. We think Japanese banks are in a relatively good position, but European banks may have to shrink capital to meet numerical targets."
- Road to final proposal — "BIS already detailed some supplementary proposals (capital buffer) and palliative measures (items deducted from capital, etc.) based on discussions regarding the consultative document released in December 2009. After the Basel conference in September, the G20 will agree on a framework in November, with the final proposal to be inked in December."
- Impact on banking sector — "We think major banks and major regional banks in Japan have more or less finished preparations for stricter regulations. However, with scope for leverage-based operations limited, bank capital ratios are likely to fall globally."
- Significant revisions — "International agreements on banking regulations, hammered out in Basel, undergo major revisions in roughly 10-year cycles. This round (Basel III) will likely change the framework of banking regulations more than ever before."
- Restrictions on leverage — "In addition to capital quality and volume requirements, regulations where risk assets are the denominator will necessitate securing an additional capital buffer when the economy is recovering. Simple leverage (not based on risk weights) will also need to be made sufficient, so it will become harder to increase capital efficiency via leverage."
- Stabilizing financing — "New regulations regarding liquidity will be added, which will look at whether banks 1) are fully prepared for a short-term capital outflow and 2) can maintain stable financing over the long term. We think Japanese banks are in a relatively good position, but European banks may have to shrink capital to meet numerical targets."
- Road to final proposal — "BIS already detailed some supplementary proposals (capital buffer) and palliative measures (items deducted from capital, etc.) based on discussions regarding the consultative document released in December 2009. After the Basel conference in September, the G20 will agree on a framework in November, with the final proposal to be inked in December."
- Impact on banking sector — "We think major banks and major regional banks in Japan have more or less finished preparations for stricter regulations. However, with scope for leverage-based operations limited, bank capital ratios are likely to fall globally."
Citigroup_Basel_Primer_20100909
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