Basel Committee overhauls disclosure model

HS-piggy-bank-dollar-image1-360x220.jpgBanks will have two years to significantly alter the way they disclose risks on their balance sheets, after regulators pressed ahead with plans to improve transparency and make it easier to compare different financial institutions.

The Basel Committee on Banking Supervision said banks will have to use more consistent and detailed models for reporting from the end of 2016, sidelining the use of banks’ own internal models currently used.

On Wednesday (January 28th), it released the final standard for the revised Pillar 3 disclosure requirements, which it says will enable market participants to better compare banks' disclosures of risk-weighted assets. The focus of the rule change is on improving the transparency of the internal model-based approaches banks use to calculate minimum regulatory capital requirements.

These will replace the existing Pillar 3 disclosure requirements, which were first issued as part of the Basel II framework in 2004, and the Basel 2.5 revisions and enhancements introduced in 2009.

Stefan Ingves, chairman of the Basel Committee and governor of Sveriges Riksbank, said: "The revised disclosure framework represents an important shift in both the format and granularity of required bank disclosures. These changes substantially strengthen the disclosure framework and will help users of the disclosures to better understand and assess the measurement of a bank's risk-weighted assets."

The changes are broadly in line with the committee’s 2014 consultation paper, with three key changes. These involve rebalancing the disclosures required quarterly, semi-annually and annually; streamlining the requirements related to disclosure of credit risk exposures and credit risk mitigation techniques; and clarifying and streamlining the disclosure requirements for securitisation exposures.