Basel regulators to limit banks' discretion on capital rules
Global regulators have stated banks should no longer be allowed to adopt a discretionary approach in the amount of capital they hold against a similar set of loans.
On Tuesday, the Basel Committee of banking supervisors, which includes members from almost 30 countries, published six examples of capital requirements where national regulators will no longer be able to decide whether to implement them or not.
"National discretion allows countries to adapt the Basel standards to reflect differences in local financial systems," the committee said in a statement.
"However, the use of national discretions can also impair comparability across jurisdictions and increase variability in risk-weighted assets."
The discretions include more time or laxer treatment of past-due loans and retail exposures.
The committee added that from next year countries will no longer be able to individually determine when to apply discretion in relation to how banks use internal models to quantify equity exposures.
"The committee will continue to monitor national discretions and consider further removals from the framework," the committee added.
The waivers were introduced under the so-called Basel II global bank capital requirements accord and have remained in the updated Basel III version now being introduced.
The changes are likely to impact banks in emerging markets such as China, Brazil and Mexico in particular where they were more widely used.
"The committee will continue to monitor national discretions and consider further removals from the framework," the statement said.
The waivers were first implemented when the so-called Basel II global bank capital requirements accord was wheeled out and have been included in the soon-to-be-introduced updated Basel III version.
Ensuring there's uniformity in the way banks control their risk-weighing is one of the top priorities for the Basel Committee, which is also considering the introduction of capital "floors" below which a bank cannot go, regardless of its circumstances and self-assessments.
British, US and Swiss regulators have put increasingly focused on ensuring banks comply with leverage ratios, making it harder to cut the amount of capital needed.