IIF Review of the 2012 Basel Work Program
January 31, 2012 — Over the past three years, the Basel Committee has been extremely active in issuing new standards and guidelines in order to address what its members see as shortcomings of the previous Basel framework exposed by the financial crisis. 2012 looks to be no different, even as the emphasis of the group’s work is shifting from finalizing standards to ensuring consistent interpretation and implementation of the agreed rules.
IIF FATCA Letter
January 25, 2012 — Letter the IIF sent to the G20 Ministers of Finance and central bank Governors. Similar letters were sent to Mark Carney as Chair of the FSB and to Timothy Geithner, Secretary of the U.S. Treasury.
2011 IIF LATAM CRO Forum
December 8, 2011 — On December 8-9, the IIF held the Latin America Chief Risk Officer Forum in Miami, hosted by Mercantil . The forum brought together risk officers in the Latin America region to discuss topics that pertain to risk management in a changing global financial environment. The forum fostered discussions on the macroeconomic trends in the Latin America region and the impact of current global regulatory reforms on risk management for Latin American banks. The presentations featured topics on liquidity, Dodd-Frank, FATCA, changes in banks’ risk management, risk IT, and others. The presentations along with the annotated agenda are located to the right of this posting, and are accessible by members.
January 2012 Global Regulatory Update
January 24, 2012 — This month’s Global Regulatory Update addresses the January 2012 GHOS statement on liquidity and Basel implementation, as well as IIF responses to releases by the FSB on resolution and data collection and the BCBS on CCPs and trade finance. There are also updates on new releases by the Basel Committee, and materials from the IIF’s most recent regional CRO Fora.
Joint Industry Letter on Trade Finance
December 1, 2011 — The IIF together with other organizations that represent a broad range of financial institutions, manufacturing and services companies, and individuals that provide important services throughout the international financial community, have issued a letter in response to the Basel Committee’s October 2011 paper on the Treatment of trade finance under the Basel capital framework. The letter notes that the findings of the Basel Committee’s paper reflect some progress in efforts to recognize the low risk nature of trade finance. However, it emphasizes that these measures do not go far enough in this regard and will not provide significant relief from the increase in capital costs impacting trade lending. There is signficant opportunity to mitigate the unintended consequences of the regulatory reforms on trade finance by further distinguishing its short-term, low-risk nature, and its criticality to global economic growth.
IIF Comments on FSB Report on Intensity and Effectiveness of Supervision
November 29, 2011 — The IIF’s Effective Supervision Advisory Group has written to the FSB in response to their recent report on “Intensity and Effectiveness of SIFI Supervision: Progress report on implementing the recommendations on enhanced supervision”.
Joint Associations Response to the Second BCBS Consultative Document on Capitalization of Bank Exposures to CCPs
November 25, 2011 — On November 2, 2011, the Basel Committee issued its second consultative document on the Capitalization of bank exposures to central counterparties. The IIF, together with the BBA, FOA, GFMA, and ISDA, commend the Basel Committee for undertaking another consultation on these complex proposals. However, the Associations reiterated the concerns that the proposals discourage the propagation of central clearing, in contrast to the policy objective stated by the G20, fail to provide incentives for CCPs to invest in the improvement of their risk systems and methodologies, and disincentivize default fund contributions and thereby create an increase in systemic risk.
2011 IIF Asia-Pacific CRO Forum
November 17, 2011 — On November 16 – 17, the IIF held the Asia-Pacific Chief Risk Officer Forum in Tokyo, hosted by Mizuho. The forum brought together risk officers in the Asia-Pacific region to discuss topics that pertain to risk management in a changing global financial environment. The forum fostered discussions on the macroeconomic trends in the Asia-Pacific region and the impact of current global regulatory reforms on risk management for Asian-Pacific banks. The presentations featured topics on sovereign risk exposures, systemic risk regulation, the derivatives market in Asia, changes in banks’ risk management, risk IT, and others. The presentations along with the annotated agenda are located to the right of this posting, and are accessible by members.
IIF Response to the FSB Data Template
November 9, 2011 — The IIF has submitted a written response to the Financial Stability Board’s consultative document on Understanding Financial Linkages: A Common Data Template for Global Systemically Important Banks. The consultative document describes the broad form of the proposed common template and the main components of data that will be collected. The Institute welcomes the efforts to build a common data template for G-SIBs across jurisdictions (assuming this would in fact replace rather than add to existing similar data requirements at the national level) in order to make supervision of international firms and macroprudential oversight more efficient and effective. However, the Institute expressed concern that such a goal will not be achieved through the proposal as presented, and suggested ways to address some of the main issues.
2011 FSI High Level Meeting & IIF MENA CRO Forum
October 26, 2011 — On October 26-27 the Arab Monetary Fund and the Financial Stability Institute hosted a High Level Meeting with the Heads of Banking Supervision from the MENA region in Abu Dhabi at the Intercontinental Hotel. The IIF has partnered with the AMF and FSI on these events in the past and brought a delegation of senior risk executives from the region. There were a number of useful speeches and presentations from international regulators and industry representatives on currently regulatory issues. You can review the agenda for the meeting and the industry presentations to the right; the entire presentation package is available upon request.
At the same time, the IIF held its MENA CRO Forum to address key regional issues on financial regulation and risk management. The forum provided members with a review of recent IIF work on Risk Appetite and Risk IT, as well as presentations on emerging economic risks and fund transfer pricing. All of these presentations, along with the annotated agenda, are to your right.
Compensation Reform in Wholesale Banking 2011: Assessing Three Years of Progress
October 20, 2011 — The Institute and Oliver Wyman have released the third annual survey of remuneration practices in the wholesale banking industry, Compensation Reform in Wholesale Banking 2011: Assessing Three Years of Progress. The report is based on a survey of 51 financial institutions comprising over 70% of the global wholesale banking revenue pool.
September 2011 Global Regulatory Update
September 26, 2011 — This month’s Global Regulatory Update looks at new IIF reports on the impact of international regulatory reform on insurance firms and the wider economy, and discusses comment letters to proposals on surcharges for systemic banks, resolution frameworks, and insurance supervision.
IIF Senior Accounting Group Response to IASB and FASB discussion focused on Impairment
September 21, 2011 — The Institute of International Finance has submitted its response to the International Accounting Standards Board (IASB) and the Financial Standards Accounting Board (FASB) discussion focused on Impairment. The response has been prepared by the IIF’s Senior Accounting Group (SAG).
Joint Associations Letters to Basel on CCP Exposures
September 21, 2011 — In December 2010 the Basel Committee released a consultative paper on the Capitalisation of bank exposures to central counterparties. In the document, Basel proposed that for default fund exposures, bank capitalize according to an approach that is based on the CCP’s “hypothetical capital”, meaning the approach is based on CCP-specific information. In a comment letter submitted this February, the IIF, along with ISDA LIBA and the GFMA, objected to this proposal on the grounds that, if implemented, it would discourage the propagation of central clearing and increase procyclicality. The response suggested that the BCBS take an alternative approach that would be more risk-sensitive for the calculation of hypothetical capital.
IIF Response to response to the Consultative Document on “Effective Resolution of Systemically Important Financial Institutions”
September 2, 2011 — The Institute of International Finance has submitted its response to the Consultative Document on “Effective Resolution of Systemically Important Financial Institutions” published by the Financial Stability Board (FSB) on July 19, 2011. The response has been prepared by the IIF’s Working Group on Cross Border Resolution, chaired by Urs Rohner, Chairman of the Board of Directors, Credit Suisse Group AG.
IIF Response to the BCBS Consultation on G-SIBs
August 26, 2011 — The IIF has submitted a written response to the Basel Committee’s consultative document on Global systemically important banks: Assessment methodology and the additional loss absorbency requirement. The consultative document sets out the proposals on the assessment methodology for global systemic importance, the magnitude of additional loss absorbency that global systemically important banks (G-SIBs) should have, and the arrangements by which they will be phased in. The Institute emphasized its fundamental objection to an approach that relies on designating groups of firms as potentially systemic and applying capital surcharge to these. This approach will only icnrease the moral hazard and market distorting effects arising out of such firms being seen as “special” and potentially too big to fail. On the proposed methodology, the Institute identified fundamental flaws and recommended that further consultation be made with the industry.
IIF submits response to CPSS-IOSCO on Financial Market Infrastructures
July 28, 2011 — The IIF has submitted a written response to the consultation by the Committee on Payment and Settlement Systems (CPSS) and International Organization of Securities Commissions (IOSCO) on Principles for Financial Market Infrastructures. CPSS and IOSCO have proposed merging and updating existing Principles and Recommendations on systemically important payment systems, securities settlement systems and central counterparties.
The IIF broadly welcomes the merged draft Principles but calls for more detailed guidance including a differentiation in the detailed application to different types of financial market infrastructure. It calls for regulators to set the Principles, Responsibilities and explanatory notes at a level that, if they were implemented effectively, would provide a sound basis for mutual recognition and reliance. In addition to commenting on the requirements for financial market infrastructures, the IIF response calls for greater ambition and requirements on supervisors, regulators and oversight bodies to have sufficient powers and resources to exercise effective oversight and to cooperate on a cross-border basis.
July 2011 Global Regulatory Update
July 13, 2011 — This month’s Global Regulatory Update includes details of recent IIF reports on supervision, risk management, and resolution, along with the new rules for systemically important financial institutions. Topics include macroprudential oversight, SIFI surcharges, risk IT, risk appetite, suitability of products for retail investors, market risk capital rules, and cross-border resolution.
IIF Releases Two New Reports on Effective Supervision and Macroprudential Oversight
July 11, 2011 — The Institute of International Finance publicly released today at a press conference in London two key new reports prepared under the auspices of the Special Committee on Effective Regulation:
Achieving Effective Supervision: An Industry Perspective, prepared by the Effective Supervision Advisory Group under Mrs Kerstin af Jochnick, Managing Director of the Swedish Bankers’ Association; and Macroprudential Oversight: An Industry Perspective, prepared by the Senior Working Group on Macroprudential Oversight.
IIF Holds High Level Symposium on Effective Supervision
June 21, 2011 — The IIF recently held a High-Level Symposium on Effective Supervision in consultation with the Office of the Superintendent of Financial Institutions of Canada, hosted by Scotiabank in Toronto on May 11-12. The symposium discussed lessons for supervision from the financial crisis, changes that could be made to enable supervision to become increasingly effective on a world-wide basis, and how to ensure the most effective possible relationship between supervisors and firms.
The symposium was attended by roughly 70 senior regulators, supervisors and industry leaders from around the world and built on work on the issue by the IMF, FSB and IIF, whose Effective Supervision Advisory Group chaired by Kerstin af Jochnick, Managing Director of the Swedish Bankers’ Association has been developing core recommendations on the subject in a draft paper “Achieving Effective Supervision: An Industry Perspective”. There was a very constructive and candid discussion on all the issues, on which the IIF intends to build in its final paper.
Letter to Ministers and Officials regarding Regulation
June 17, 2011 — The attached letter was sent by the IIF Board leadership, on behalf of the entire IIF Board, to the Chairs of the Basel Committee on Banking Supervision, the Group of Central Bank Governors and Heads of Supervision and the Financial Stability Forum. It was also copied to G20 Ministers. The letter, which has not been made public and which should therefore be treated as confidential to the IIF membership, deals with two aspects of current regulatory reforms that are sources of concern: the designation of systemically important firms (and the application of capital surcharges to these) and the economic impact of the wider regulatory reform agenda.
IIF Releases Two New Reports on Risk Appetite and Risk IT
June 17, 2011 — The Institute of International Finance publicly released today at an Open Program and Press Conference in London two important new reports prepared under the auspices of the IIF Steering Committee on Implementation:
Implementing Robust Risk Appetite Frameworks to Strengthen Financial Institutions, prepared by the Working Group on Risk Appetite; and Risk IT and Operations: Strengthening Capabilities, produced by McKinsey & Co. with input from the Risk IT Working Group.
IIF Proposes Approaches to Bail-In and Resolution Planning
May 9, 2011 — The IIF today published detailed proposals for the resolution of financial services firms. The IIF stated that effective resolution is essential in achieving long term resilience and financial stability and it plays a key role in addressing important issues of moral hazard. In its report today, the IIF made proposals to preserve critical functions in failing firms to ensure against serious systemic disruption. It highlighted a set of “bail-in” actions that have the potential to ensure that firms of all shapes and sizes can fail – with losses being absorbed by shareholders and creditors and with no expectation of taxpayer bail-outs. Moreover, it emphasized the importance of building a robust cross-border resolution framework.
IIF and Other Associations Release Combined Principles for Retail Structured Products
May 23, 2011 — The Joint Associations Committee on Retail Structured Products has reaffirmed the set of principles for managing the provider-distributor relationship (PD Principles) in retail structured products and the principles for managing the distributor-individual investor relationship (DI Principles), originally published in July 2007 and July 2008 respectively.
The IIF is associating itself with the re-release of the principles and strongly supports them.
The Principles are consistent with and have been reflected in the March 2011 joint industry contribution to IOSCO on suitability requirements for market intermediaries towards investors and with the principles set out in that contribution.
2012 IIF Annual Meeting of Latin American Chief Executives Save the Date
2012 IIF Annual Meeting of Latin American Chief Executives Save the Date
SIFI Surcharges: Fundamental Issues and Empirical Estimates
This paper sets out a number of fundamental issues that need to be considered by policy makers when contemplating capital surcharges on institutions judged to be systemically significant (SIFIs). It also provides some empirical estimates of the possible economic implications of imposing such charges.
Banks Continue to Implement Risk Management Reforms Following the Crisis
April 12, 2011 — In the light of the financial crisis, the industry has put in place wide-ranging programs to address weaknesses in risk management, including governance, incentives and risk measurement, according to a survey published today by Ernst & Young. Banks in the United States and in Europe, some of which sustained the most substantial losses in the crisis, have launched the most aggressive programs and banks felt that substantial progress has been made. “However, this is a journey and the reforms although well underway will take time to complete,” said Ernst & Young.
IIF Submits Response to the IASB and the FASB on Impairment Proposal (Supplementary Document)
April 1, 2011 — The Institute of International Finance Senior Accounting Group submitted its comment letter to the IASB and the FASB on its joint impairment proposal (Supplementary Document). The Senior Accounting Group welcomes the proposed changes that address operational challenges and other issues identified in those previous proposals.
March 2011 Global Regulatory Update
March 31, 2011 — This month’s Global Regulatory Update details the latest work of the IIF and developments in international relations, as well as a recap of the regulatory panels held at the Institute’s recent membership meeting in India. Topics include market infrastructure, remuneration, accounting standards, resolution, and operational risk, as well as notices for upcoming IIF events focusing on industry practices.
Bank Funding and Regulatory Reform
Understanding the impact of financial sector regulatory reforms on banks’ funding cost is key to assessing the economic impact of these reforms. Economic theory suggests that the supply curve of both bank debt and equity is upward sloping. But there is a range of possible specification for that curve, depending on what model is considered to be valid: from the relatively flat curve envisaged by the Modigliani and Miller theorem and supported by the academic and official sector community to a relatively steep one, favored by practitioners.
This Note reviews the economic theory and empirical evidence behind banks’ funding cost models. It concludes that particularly, in the short run, it is likely that banks’ equity and debt investors, faced with heavy issuance, would require to be compensated with higher returns, resulting in higher funding costs.
Industry associations send written contribution to IOSCO on suitability requirements
March 11, 2011 — The IIF, the International Banking Federation and the Joint Associations Committee on Retail Structured Products have sent a written contribution to IOSCO on the subject of suitability requirements for market intermediaries in relation to investors. The contribution supports the work of IOSCO in developing international principles, but warns IOSCO to be mindful of the complexity of the issue and encourages it to take a careful, targeted and proportionate approach. With this in mind, the Associations have suggested a number of principles that should guide any approach.
IIF Submits Comments to the IASB and the FASB on Hedge Accounting Proposals
March 9, 2011 — The Institute of International Finance Senior Accounting Group submitted its comment letter to the IASB and the FASB on its hedge accounting proposals. The Senior Accounting Group believe the proposals improve several areas of hedge accounting and supports the IASB Exposure Draft’s objective to align hedge accounting more closely with risk management. However, the Group is concerned about specific areas of the proposals. The Group supports convergence between IFRS and US GAAP on hedge accounting and believe the IASB’s Exposure Draft provides a good starting point for changes to US GAAP.
IIF comments on the Technical details of a possible EU framework for bank recovery and resolution
March 3, 2011 — On 6 January 2011 the European Commission launched a consultation on the “Technical details of a possible EU framework for bank recovery and resolution”. The areas covered by this consultation include: common and effective tools and powers to deal with failing banks at an early stage, and to minimize costs for taxpayers; effective arrangements which ensure that authorities coordinate and cooperate; fair burden sharing by means of financing mechanisms which avoid use of taxpayer funds, including a possible ‘bail-in’ mechanism.
IIF Comments on BCBS Remuneration Disclosure Requirements
February 25, 2011 — On December 27 the BCBS published a consultation on Pillar 3 disclosure requirements for remuneration. The document adds more granularity to the initial guidance on remuneration included in the supplemental Pillar 2 guidance issued by the Committee in July 2009 by detailing the key qualitative and quantitative disclosures that firms will have to make. These disclosures are based on the Financial Stability Board’s 2009 Principles for Sound Compensation Practices.
IIF Comments on BCBS OpRisk Consultative Documents
February 25, 2011 — The IIF’s Working Group on Operational Risk is grateful for the opportunity to comment on the two consultative documents issued by the Basel Committee on Banking Supervision (BCBS) in December 2010 – Sound Practices for the Management and Supervision of Operational Risk and Operational Risk – Supervisory Guidelines for the Advanced Measurement Approaches.
Joint Associations Response to Basel Consultation on CCPs
February 4, 2011 — On December 2010 the Basel Committee released a consultative paper on the Capitalisation of bank exposures to central counterparties. In the document, Basel proposes a 2% risk weight for exposures to “qualifying” CCPs, with adherence to the CPSS and IOSCO standards being the qualification required. For default fund exposures, bank should capitalize according to an approach that is based on the CCP’s “hypothetical capital”, meaning the approach is based on CCP-specific information.
IIF Submits Comments to the IASB and the FASB on Effective Dates and Transition Methods
January 31, 2011 — The Institute of International Finance Senior Accounting Group submitted its comment letter to the IASB and the FASB on its request for views on effective dates and transition methods.
January 2011 Global Regulatory Update
January 25, 2011 — The January Global Regulatory Update details the latest developments in financial system regulation over the last couple months, as well as how the IIF is currently addressing the issues raised by the public sector.
IIF Comments on European Commission Consultation on Credit Rating Agencies
January 10, 2011 — The European Commission services have launched last November a broad consultation on credit rating agencies (CRAs). While the consultation document covers a variety of issues linked to the activities and the role of CRAs, the IIF comment letter focuses on the issue of overreliance on external credit ratings with particular reference to their use in regulatory capital frameworks for credit institutions.
Basel III - IIF Preliminary Analysis
December 16, 2010 — The IIF Regulatory Affairs Department has undertaken a quick analysis of the final standards published by the Basel Committee on Banking Supervision (BCBS) on December 16. These two documents contain our initial assessment of the capital and liquidity standards, focusing in particular on what we believe are the main issues and the most salient changes regarding the original proposals and the July and September 2010 decisions.
October 2010 Global Regulatory Update
October 30, 2010 — In the October 2010 Global Regulatory Update there are updates on the work of the FSB and the Basel Committee as well as IIF responses to work by the US on credit ratings and by the CGFS on haircuts and margin requirements.
IIF Comments on US ANPR on Removing References to Credit Ratings in Regulations
October 25, 2010 — On August 11 the United States bank regulatory agencies issued an Advance Notice of Proposed Rulemaking (ANPR) that requested public feedback on alternatives to the use of credit ratings in risk-based capital rules. As any such rulemaking will have a broad impact on how Basel III is implemented in the United States, the IIF submitted its comment letter, drafted by the Working Group on Capital Adequacy, on October 25.
IIF & ISDA Comments on CGFS Paper 36: The Role of Margin Requirements and Haircuts in Procyclicality
October 15, 2010 — The IIF and ISDA jointly contributed comments on CGFS 36: the role of margin requirements and haircuts in procyclicality, which reflected the comments from members of the Interconnectedness Oversight Group.
IIF Responds to Basel Committee Proposals on Gone Concern Contingent Capital
October 1, 2010 — In response to the Basel Committee consultative document Proposal to ensure the loss absorbency of regulatory capital at the point of non-viability, the IIF Working Group on Definition of Capital submitted a comprehensive comment letter on October 1.
