Basel Committee Releases New Rules on Capital Cushioning
Banks are under continued pressure by regulatory agencies concerned about risks. The Basel Committee has backed down from drafted rules intended to ensure that banks increase capital cushioning to cover losses that could arise if interest rates rise from record-making lows. The global regulatory panel is now encouraging supervisors to monitor interest-rate risks and will ask for more if risk models aren’t strong enough.
As discussed in “Regulators take softer line on banks’ interest rate risk,” posted by Huw Jones on Reuters.com, the Basel Committee, which is made up of banking supervisors from approximately 30 countries, drafted rules last year that included a mandatory capital requirement or stricter disclosure. After pushback from banks and receiving other industry feedback, the committee decided to cut the mandatory capital requirement in favor of a supervisor-lead approach. A group of 20 economies, including Basel members, also demanded that capital requirements shouldn’t increase from the levels established in the Basel III accord from the 2007-09 financial crisis. For now, the committee will permit big banks to use their own models for calculating interest rate risk; however, regulators could demand stronger rules if they determine that bank models are inadequate. Banks will need to complete six stress scenarios that show how rate rises would impact stocks and bonds and their net interest income. Banks with capital buffers that are reduced by more than 15% under stress tests may see tighter scrutiny.
Time for Banks to Update Systems to Manage Risk and Regulatory Compliance
Since these new rules will replace 2005 guidance and are scheduled to become effective in 2018, banks should start putting the technology in place to gain control and insight over financial operations. An enterprise resource planning (ERP) solution can provide a strong platform for managing regulatory compliance and other internal operations. A centralized solution makes it easier for your people to enter and access key data regarding financial and accounting processes. Built-in business intelligence features also make it easier to monitor data, in real time, so that you can react faster to new opportunities or changing marketplace conditions and customer demands.
Get positioned to navigate these new rules and strengthen your operations by strengthening your technology. Contact AKA Enterprise Solutions for more information about using ERP to manage risk, improve regulatory compliance and gain valuable control and insight over financial processes.