The suitability of banks' internal models for modelling capital requirements would remain a focus of "a longer-term review of the structure of the regulatory capital framework," said Mark Carney, chair of the Financial Stability Board, over the weekend.
In one of a series of papers prepared for the G20 Leaders for the Brisbane Summit, the FSB outlined its follow-on priorities after six years of activism of financial regulatory reform.
The FSB and other regulators' work to date won endorsement from the political class. "We have delivered key aspects of the core commitments we made in response to the financial crisis," the G20 leaders said in their communiqué.
"Our reforms to improve banks' capital and liquidity positions and to make derivatives markets safer will reduce risks in the financial system," they said.
"We welcome the Financial Stability Board's proposals requiring global systemically important banks to hold additional loss absorbing capacity that would further protect taxpayers if these banks fail."?
The Financial Stability Board last week set out proposals covering "principles … on the adequacy of loss-absorbing and recapitalisation capacity of global systemically important banks."
These, once finalised, will "form a new minimum standard for 'total loss-absorbing capacity' which should provide home and host authorities with confidence that G-SIBs have sufficient capacity to absorb losses, both before and during resolution."
The G20 communique also highlighted "progress … delivering the shadow banking framework [from the FSB]."
The FSB spelled out one priority, saying that among "considerations [would be] the extent to which internal modelling options in the regulatory framework facilitate improved risk and capital management in banks, and alternative approaches for determining regulatory capital that reduce or remove reliance on bank-internal models while maintaining adequate risk sensitivity."
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The review would "consider to what degree effective market discipline is inhibited by ongoing inconsistencies in bank capital ratios and how these inconsistencies can be addressed to facilitate comparability across banks," the FSB said.
The FSB highlighted that its latest study found "the banking system as a whole continues to build capital and is close to meeting the full set of fully phased-in minimum Basel III capital requirements well ahead of the 2019 deadline."
It said that, in the six months to December 2013, "the average Common Equity Tier 1 (CET1) capital ratio of large internationally active banks rose from 9.5 per cent to 10.2 per cent of risk-weighted assets, mainly as a result of increased amounts of capital."
According to the FSB, the aggregated capital shortfall of those banks that still have capital ratios below the fully phased-in 2019 CET1 target level of seven per cent of RWAs "continues to decrease" with the CET1 shortfall at €15 billion in December 2013 (compared with €115 billion at the end of 2012).
It said the weighted average Basel III leverage ratio for large internationally active banks was 4.4 per cent, up from 3.7 per cent in December 2012.