1. Finalising Basel III: Stability through reform International Council of Securities Associations, ICSA ( )
Stefan Ingves
Governor of the Riksbank
Chairman of the Basel Committee on Banking Supervision

2. This year will mark the end of the development of Basel III
Today’s agenda:
Where we are today
What’s to come
What happens after 2016

3. Basel III requires more capital of better quality2% 4%
Additional
Tier 1 capital
CET1
capital
Tier 2 8%
4.5%
2.5%
1.5%
Minimum requirement
Capital conservation buffer
Countercyclical capital buffer
9.5% 7%
Basel III
Capital/
Risk-weighted assets
13% %
Note: CET1 = Common Equity Tier 1

4. Basel III also marked the introduction of new liquidity standards
Short term liquidity
Long term funding
Liquidity Coverage Ratio
Net Stable Funding Ratio
High quality liquid assets
Available stable funding
≥ 100 %
≥ 100 %
Net cash outflows over a 30 day period
Required stable funding

5. The goal of this year is to finalise the remaining elements of Basel III
Motivation:
Lessons learned from the crisis and observations on the workings of the framework
Revised modelled approaches
Credit risk, Market risk, Operational risk
Robust standardised approaches
New capital floor
Finalised leverage ratio

6. Studies suggest considerable variation in the RWA:s across banks
Studies suggest considerable variation in the RWA:s across banks
An illustrative example: two banks with the same portfolio and capital, but different ways of calculating risk weights
CET 1 ratio (%)
Minimum level
Basel III
4.5 %
Bank A
Low risk weights
Bank B
High risk weights
Sources: The BIS and the Riksbank

7. Proposals to limit the use of internal models face critisism
Models can play an integral role in risk management of a bank
When properly designed, applied and governed
With a management team and board that understand and are willing to challenge the output
However, models have fallen short in a framework intended to provide understandable and comparable levels of exposure and risk

8. We now have a system of multiple constraints
Concern has been expressed about how to calibrate the remaining reforms
The committees quantitative impact studies are critical input
The objective is to reduce excessive and unwanted variation in banks’ risk-weighted assets, not to significantly increase overall capital requirements

9. What’s next: 2017 and beyond
Provide guidance to help implementation
Monitoring implementation and banks progress
Other issues that supports the broader goal and agenda of supervision
Corporate governance
Stress testing
Anti-money laundering
Financial technology …

10. Thank you