This publication of the results of the 2001 disclosure survey is part of the sustained effort by the Basel Committee on Banking Supervision (the Committee) to promote transparency and effective market discipline in the banking and capital markets.
The report aims to provide an overview of the disclosure practices of a sample of internationally active banks and to encourage these to further enhance transparency, especially in light of the coming implementation of the New Basel Capital Accord. Together with a similar survey conducted during the previous two years, the report also intends to highlight trends in the disclosure practices by banks.
The survey focuses on the annual reports of 54 banks representing a sample of internationally active banks headquartered in the Committee's member countries. It includes 104 questions addressing quantitative and qualitative disclosures in a number of categories: capital structure, capital adequacy, market risk internal modeling, internal and external ratings, credit risk modeling, securitisation activities, asset quality, credit derivatives and other credit enhancements, other derivatives, geographic and business lines diversification, accounting and presentation policies, and other risks.
The survey reveals that many banks have continued to expand the extent of their disclosures. Overall, in 2001, banks disclosed 63% of the items included in the survey, up from 59% in 2000 and 57% in 1999.
The main findings are the following:
The most prevalent disclosures in 2001 were those on accounting and presentation policies, other risks and capital structure while those on credit risk modeling and credit derivatives and other credit enhancements were the less widespread. Disclosure of information on internal risk models was also much more common for market risk than for credit risk;
Disclosures of information on securitisation activities, internal and external ratings and credit derivatives and credit enhancements considerably expanded over the period from 1999 to 2001 while remaining not very frequent. The most noteworthy improvement is the increase in the disclosure of information on other risks (operational and legal risks, liquidity risk and interest rate risk in the banking book) with the result that this became one of the most commonly provided disclosures in 2001;
Regarding individual disclosure items, the most common were on the structure of capital (e.g. the amount of common shareholders' equity), accounting and presentation policies (e.g. the basis of measurement for assets at initial recognition and subsequent periods), market risk internal modeling (e.g. the type of internal modeling used) or capital adequacy (e.g. the risk-based capital ratio calculated in accordance with the methodology prescribed in the Basel Capital Accord).
In view of these results, the Committee encourages banks to further enhance the transparency of their use of credit risk mitigation techniques (including credit derivatives), asset securitisation and internal ratings, given that disclosure in these areas will be qualifying criteria for the recognition or use of these techniques under the New Basel Capital Accord.
Furthermore the few banks that do not disclose (compared to their peers) the most commonly provided disclosures are urged to improve these disclosures, which are already recommended under the existing disclosure guidance papers issued by the Committee and for the most part will be required under the New Basel Capital Accord.