are evident between jurisdictions in a host of areas, such as pace, the
degrees of strictness relative to Basel Committee guidance, and the
resulting challenges banks face.
Moody's views the key requirements being implemented as part of Basel III
as credit positive, addressing many of the deficiencies in banks'
pre-crisis management of risk, capital, liquidity and funding and
Moody's also argues, however, that it is apparent that some of the
weaknesses associated with Basel II have not been sufficiently addressed
and that it is too soon to say that the industry has so far achieved
fundamentally stronger creditworthiness as a result of Basel III.
Moody's conclusions were contained in a just-released report titled
"Basel III Implementation in Full Swing: Global Overview and Credit
Implications". The report -- co-authored by
Roscoe -- reflects contributions from Moody's banking analysts worldwide,
and brings together assessments on the progress of implementation of
Basel III in the
Themes include implementation trends and credit implications, the
implications for banking industry strength, and the background to
III. In particular, Moody's discusses how the Basel III framework
addresses the deficiencies of previous frameworks which became apparent
as a result of the global financial crisis. The report also contains
tables and exhibits analyzing and comparing the situation in each
For those systems where the banks already hold high levels of capital and
liquidity -- such as in
-- authorities are imposing higher, "super-equivalent" requirements, and
maintaining the liquidity and capital in their systems, a credit
In this case, a key challenge for banks will be the replacement of
non-qualifying instruments through organic capital generation or issuance
of new Tier 1 and Tier 2 instruments.
Continuing on its themes of the differences between jurisdictions, the
report notes that in some countries, including the
Supervision (BCBS) guidance so as to avoid regulatory "back-stepping" --
that is, capital or liquidity requirements were already stricter than the
requirements of previous regimes, such as Basel II.
Many jurisdictions are also implementing stricter requirements for their
larger banks, including higher minimum capital levels, or accelerated
phase-in of capital and liquidity requirements. For example, US
systemically important banks are subject to a Tier 1 capital leverage
buffer of at least 2% of total leverage exposure above the 3% minimum.
The report further observes that the Basel III framework does not address
some Basel II weaknesses, including comparability of risk-weighted
assets and inconsistent use of and disclosure of Pillar 2 assessments.
Given the differences in implementation requirements and schedules, users
of banks' financial disclosures should be aware that transitional capital
and leverage ratios are not directly comparable without taking account of
accelerated or "super-equivalent" local rules, according to the report.
Once fully implemented, the Basel III framework will improve banks'
resilience to asset and liquidity stresses and shocks, but it is also
too soon to conclude -- as indicated -- that the industry has achieved
The report notes that banks have made substantial improvements in their
fundamentals, including reductions in leverage, the implementation of
firm-wide stress testing, and the formation of more robust liquidity and
funding profiles. Yet, many banks remain challenged in meeting full
III requirements while, at the same time, sustaining profitable business
models under these more stringent regulatory constraints.
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