Basel Committee releases revised Pillar 3 disclosure requirements

The Basel Committee on Banking Supervision has issued revised Pillar 3 disclosure requirements, aiming to improve the consistency of disclosures while giving banks the flexibility to provide commentary on specific risk profiles.

Pillar 3 is a set of regulatory measures that require banks to adopt specific approaches to measuring credit, market and operational risks, risk-weighted assets and capital requirements.

The Basel Committee said the financial crisis showed that the existing Pillar 3 framework failed to promote the identification of a bank's material risks and did not provide sufficient (and sufficiently comparable) information to enable market participants to assess a bank's overall capital adequacy and to compare it with peers.

"A key goal is to improve comparability and consistency of disclosures. To this end the document introduces harmonized templates," Basel said in the document released last week.

"However, a balance needs to be struck between the desirability of consistency and the need to allow management sufficient flexibility to provide commentary on a bank's specific risk profile."

To achieve this balance the new rules introduce a "hierarchy of disclosures", with fixed form templates for quantitative information that is considered essential and templates with a more flexible format for information that is meaningful to the market but not central to the analysis of a bank's regulatory capital adequacy.

Reporting templates with fixed formats include the credit quality of assets, change in the stock of defaulted loans and debt securities, analysis of counterparty credit risk, credit valuation adjustment credit charge and securitisation exposures.

Reporting templates with flexible formats include additional disclosures related to credit quality of assets, banks' use of credit ratings, composition of collateral for counterparty credit risk exposure and credit derivative exposures.

Banks will be required to publish their first reports under the revised framework with their year-end 2016 financial report.