The material distributed for QIS 3 consisted of three parts. There was a questionnaire in the form of an electronic workbook. There also was a set of corresponding instructions that specified how to complete the questionnaire in order to ensure that banks do so in a consistent manner. Additionally, the Basel Committee released the QIS 3 technical guidance that set out the proposed minimum capital requirements at that time in detail. It comprised all aspects of the pillar one proposals.
In conjunction with the main QIS 3 package, banks had to review the Areas of National Discretion Checklist that contains a list of items where national discretion is permissible. National supervisors provided participants of the QIS 3 exercise with a completed checklist setting out their decisions (for QIS 3 purposes). This checklist provided guidance on which options banks should use when completing the QIS 3 questionnaire. The entire version of the QIS 3 package was also available from national supervisors.
In addition to the comprehensive QIS 3 package described above, there was a streamlined version of the QIS 3 package that was provided to banks only completing the standardised approach for credit risk and the basic indicator or standardised approach (i.e. not the advanced measurement approach) for operational risk. In addition, this streamlined package did not include worksheets, instructions or technical guidance relating to securitisation. However, any banks with material involvement in securitisation were required to use the comprehensive package. Banks had to contact their national supervisor to obtain the streamlined version of the QIS 3 package.
Update to QIS 3 Workbooks and Additional Instructions
Following the release of the QIS 3 on 1 October 2002, a small number of changes have been made to the electronic workbook. The alterations are mainly to correct some links between the worksheets and, in a few cases, to correct formulae. Because it is important that accurate questionnaires be completed, a revised version of the electronic workbooks (for both the comprehensive and standardised only package) has been provided for banks. Banks must use the revised version of the workbooks to calculate capital requirements under the proposed New Basel Capital Accord.
The structure of the workbook is unchanged, with the exception of the addition of three rows (461-463) in the Current Accord spreadsheet to incorporate 'off-balance sheet specialised lending exposures' - the appropriate links to the data sheet have also been added. The approach taken to calculate capital is the same and the row/column placements for banks' inputs (i.e. the yellow cells) are unchanged in the worksheets. Therefore, banks, which have started to fill out the questionnaire, will simply be able to copy information into the new workbook (although care must be taken to copy only yellow cell inputs - cells with formulae must not be overwritten).
The other parts of the QIS 3 package are unchanged - including the instructions distributed to banks. However, additional instructions are being provided that address two separate issues: (1) the granularity criterion in the standardised approach of the retail portfolio, and, (2) the impact of guarantees by adjusting LGD-estimates in the advanced IRB approach.
Additional instructions to QIS 3 banks
Additional information on the standardised approach regulatory retail portfolio
The Technical Guidance to QIS 3 introduces the so-called 'regulatory retail portfolio'. Exposures in this portfolio will receive a 75% risk weighting, provided they meet the criteria in paragraphs 42-43 of the Technical Guidance. One of the criteria mentioned is the so-called granularity criterion, which states that no aggregate exposure to one counterpart1 1 can exceed 0.2% of the overall regulatory retail portfolio.
The Committee would like to use QIS 3 to gather more information on the impact of the granularity criterion. In completing the standardised approach spreadsheets, banks are required to strictly follow the rules and apply the granularity criterion. In addition, banks should use the notes section of the templates to indicate whether the granularity criterion was binding, and if so what amount of additional exposures could have been included in the regulatory retail portfolio if the granularity criterion had not been applied. In other words, banks should indicate in the notes section how many exposures (i.e. amount of assets and off-balance sheet items converted into credit equivalent amounts) meet the orientation criterion, the product criterion and the low-value criterion, but do not satisfy the granularity criterion.
Guarantees reflected in LGD-estimates
When assigning guaranteed exposures to portfolios, banks should generally assign the guaranteed amount of an exposure to the portfolio of the guarantor, rather than the obligor. In recording the information the exposure must be allocated to the same portfolio 'before' and `after' protection is taken into account - therefore a corporate loan fully guaranteed by a bank will be recorded in the bank portfolio throughout the spreadsheet and never appear in the corporate portfolio.
However, there is one exception to this general rule. It applies to banks completing the advanced IRB approach that choose to reflect the impact of guarantees by adjusting LGD-estimates. In this case the exposure remains in the original portfolio, i.e. in the portfolio of the obligor. To ensure consistency throughout the approaches in QIS 3, the exposure must also remain in the obligor's portfolio under the foundation IRB, standardised, and current approaches. The effect of CRM will be incorporated in the usual way, but without moving the exposure to another portfolio. Banks that adopt this approach must indicate in the notes section what assets are involved. This exception is not relevant for banks that choose to reflect the impact of guarantees by adjusting PD in the advanced IRB approach. Banks using the PD adjustment should continue to assign exposures to the portfolio of the guarantor.
Results
The Basel Committee on Banking Supervision released the results of the QIS 3 on 5 May 2003. More than 350 banks in 43 countries participated in the exercise. Following up on public interest in the QIS 3 results, the Basel Committee published a further supplementary document on 27 May 2003 which provides more detail on some areas of the results.
1 Footnote
| 1 | Aggregated exposure means gross amount (i.e. not taking any credit risk mitigation into account) of all forms of debt exposures (e.g. loans or commitments) that individually satisfy the three other criteria. In addition, 'on one counterpart' means one or several entities that may be considered as a single beneficiary (e.g. in the case of a small business that is affiliated to another small business, the limit would apply to the bank's aggregated exposure on both businesses). |
Comments received
The Committee wishes to thank those who have taken the time and effort to express their views on the above consultation. The comments received are available in PDF format below.