The Basel Committee's work programme for 2015 and 2016

The work programme for 2015 and 2016 is structured around four themes:

During 2014 the Basel Committee published a number of final standards and consultative documents.

Policy development

The Committee will continue to pursue its post-crisis reform agenda, with a focus on restoring confidence in capital ratios. This includes revisions to existing methods of measuring risk-weighted assets. For example, revisions of the standardised approaches for credit, market and operational risk have been published for consultation. In addition, other policy development work is well advanced. This includes a capital floor based on standardised approaches, consideration of simple, transparent and comparable criteria for securitisations, the fundamental review of the trading book and interest rate risk in the banking book. There is also ongoing work with the Financial Stability Board related to the adequacy of loss-absorbing capacity of global systemically important banks (G-SIBs) in resolution.

In addition to existing policy initiatives, there are three policy-related issues which the Committee is undertaking:

  1. assessing the interaction, coherence and overall calibration of the reform policies;
  2. reviewing the regulatory treatment of sovereign risk; and
  3. assessing the role of stress testing in the regulatory framework, in light of national developments.

Interaction, coherence and overall calibration

Now that the major elements of the reform agenda have been agreed, the Committee will assess the interaction, coherence and overall calibration of the reform policies. The aim of the Committee's work on coherence is to consider how the various regulatory metrics interact and whether the calibration and design of the various elements of the framework are consistent with their intended objectives.

The regulatory framework that has emerged following the crisis is one with multiple metrics. Compared with the pre-crisis framework - which relied only on the risk-weighted capital ratio - the revised regulatory framework now includes a leverage ratio, large exposure limits, the liquidity coverage ratio, net stable funding ratio and forthcoming loss-absorbing capacity requirements for G-SIBs in resolution. In addition, as described in more detail below, stress testing has played an increasingly important role in a number of jurisdictions. The Committee will further assess the potential interactions among these metrics, including the extent to which the various measures bind across different banks and drive bank behaviour.

This shift to multiple metrics and greater reliance on stress testing reflects the importance of an eclectic regulatory framework, relying on a range of complementary regulatory measures and supervisory judgement. Such an approach is more robust to arbitrage and erosion over time, as each measure offsets the shortcomings and adverse incentives of the others. For example, the leverage ratio provides an absolute cap on leverage, but, by itself, could incentivise banks to increase their holdings of higher risk assets. The risk-weighted framework compensates for this as it constrains any bank that materially increases its risk profile without any commensurate regulatory capital to fund its balance sheet. The LCR requires banks to maintain a prudent buffer of high quality liquid assets.

The Committee is committed to finalising the calibration of the leverage ratio, revising the standardised approaches and implementing a capital floor. As part of this work, the Committee will also consider how the interaction of the various metrics should influence the calibration of these policy items.

Sovereign risk

The Committee has initiated a review of the existing regulatory treatment of sovereign risk and will consider potential policy options. The review will be conducted in a careful, holistic and gradual manner.

Stress testing

The Committee plans to further investigate current approaches to stress testing across jurisdictions and to discuss the role of stress testing in the Basel framework, particularly how stress testing relates to the existing Pillar 1 (minimum requirements) regulatory framework. This work follows the increasing importance of stress testing in many countries, both as a supervisory tool and as a method for determining bank capital requirements.

Simplicity, comparability and risk sensitivity

Work on simplicity, comparability and risk sensitivity combines the issues emerging from the Committee's top-down review of the framework along with the bottom up work on risk-weighted asset variability, which were detailed in the Committee's November 2014 report to the G20 Leaders. The G20 report sets out the measures the Committee is taking to simplify the regulatory framework, and to improve consistency and comparability in bank capital ratios, thereby restoring confidence in risk-weighted capital ratios.

The Committee is also working to improve the presentation of its web pages, including the consolidation of the Basel framework into a single volume.

Monitoring and assessing implementation

The Committee will continue to monitor and assess its members' implementation of the Basel framework. The Regulatory Consistency Assessment Programme (RCAP) is the means by which the Committee evaluates member jurisdiction's adoption of its standards. The RCAP will be expanded to also cover Basel III's liquidity standards and the frameworks for global and domestic systemically important banks.

Improving the effectiveness of supervision

The Committee will continue its work on improving the effectiveness of supervision. In particular, the Committee will focus on supervisory practices related to stress testing, valuation practices and the role of Pillar 2 in the capital framework.

Summary of BCBS publications in 2014

The following are among the standards finalised or published for consultation during 2014:

Reflecting the Committee's focus on implementation, 2014 publications on this topic included:

With respect to bank supervisory issues, the Committee issued:

In addition, the Committee published a report prepared for the G20 Reducing excessive variability in banks' regulatory capital ratios. This set out the measures the Committee has taken or will take to address the issue of variability in risk-weighted assets.