In the process of amending the agreement, the Committee informed this decision in various ways. For example, the press release of July 22, 2002 introduced the revision of the second draft of the Exposure Draft. In addition, the QIS3 technical guidance document also introduces the reasons for the revision. Therefore, this paper only introduces the revision of the first pillar (that is, the minimum capital requirement part) of the technical guidance document from June 5, 2002 to 10. This also helps readers to follow the changes of the new protocol and pay attention to the main changes. According to the requirements of IRB framework, banks can use the expected loss (EL) of risk-weighted assets. For most risks, the expected loss of risk-weighted assets is equal to 12.5 X PD X LGD X EAD. The Committee once again considered the treatment methods of common preparations in the QIS3 technical guidance document. The Committee plans to adjust the criteria for determining the excess general reserve that may be included in tier 2 capital. Excess reserves can continue to offset IRB's capital requirements in a one-to-one ratio, but only if the expected loss of IRB's capital requirements exceeds the maximum value of qualified reserves in tier 2 capital.
The Committee notes that there are different views on the relationship between the general reserve and the expected loss, especially the general reserve already included in tier 2 capital. However, using other methods to deal with such reserves will affect the ratio of tier-one capital to total capital. From a practical point of view, this influence is tantamount to redefining the composition of regulatory capital. In the process of revising Basel II, the Committee decided not to adopt this measure a long time ago. The Committee continues to believe that the revision of capital composition must be a comprehensive consideration of all aspects of capital composition.
The Committee revised the standard method for handling overdue loans and considered the role of preparation to some extent. Considering the scale of special reserve relative to the loan balance (after deducting special reserve and qualified mortgage or guarantee), the risk weight of overdue loans is different. For example, when the special reserve is not less than 20% of the loan balance, the risk weight of the loan is 100%. Without any special preparation, the risk weight of overdue loans is 150%. In addition, if the overdue loan is mortgaged with collateral not recognized by the standard method and the special reserve reaches 15% of the overdue loan balance, the risk weight of the loan is 100%.
Qualified circular retail risk exposure (QRRE).
The slope of the risk weight curve of qualified circular retail risk exposure has been modified according to the results of quantitative impact analysis. The maximum relative coefficient is reduced from 0. 15 in the QIS3 guidance document to 0. 1 1. In addition, this function allows future marginal gains to offset 75% of expected losses.
The Committee believes that QRRE's relatively low capital requirements may encourage banks to change the way they lend to consumers. In particular, this approach may lead banks to establish retail loan business through revolving loans (such as credit cards) instead of unsecured personal long-term loans.
QIS3 did not require banks to predict the potential impact of issuing credit cards without engaging in unsecured personal long-term loans. Such changes in retail loans may make their capital requirements lower than the level that the Committee considers appropriate after considering the results of QIS3. As a future review of the New Basel Accord and the overall capital bottom line during the transition period, the Committee will consider the impact of this change.
Generally speaking, members of the Committee will carefully supervise the classification of bank loans and ensure the consistency of implementation through inspection or other means. In particular, they should try to ensure that banks will not reclassify loans in order to reduce capital requirements.
For details, see paragraphs 202 to 203 and 299 to 300. As a transitional measure, the Committee also suggested that the LGD of retail loans with residential mortgage should be 10%. Due to the long potential periodicity of house prices, short-term data cannot be accurately reflected. Therefore, in the first three years of the transition period when the IRB law is implemented, the LGD of retail loans with residential housing as collateral shall not be less than 65,438+00%, which is true for all sub-items of such loans. During the transition period, the Committee will reconsider its bottom line.
The Committee has also taken measures to stipulate the amount of capital required for housing mortgage loans in accordance with the Standards Act and the Immigration and Refugee Board Act. When using the standard method, the loan weight secured by the borrower's existing house, which is about to be sold or leased, is 35%.
See paragraphs 235 and 45 for details. (professional loan, SL)
IRB method regards professional loans as sub-projects of corporate loans. Professional loan refers to the financing provided for a single project, and its repayment is closely related to the operation of the corresponding asset pool or collateral. For professional loans, commercial buildings are listed separately in the third draft, because compared with other types of professional loans, the loss rate of such loans fluctuates greatly, which is called high-volatility commercial real estate.
QIS 3 technical document points out that banks that can't estimate the PD value according to the IRB method of the company need to include the internal rating of their professional loans in the five grades stipulated by the regulatory authorities. The first gear has its own risk weight. The regulatory authorities stipulate that the risk weight of this kind of loans is higher than that of other professional loans because of its great potential risks. This paper provides the requirements for inclusion in regulatory standard documents for banks' reference.
As the content decided by each country, the third draft allows banks with regulatory levels to give preferential risk weights to "strong" and "good" risk exposures. The conditions include that the remaining term of professional loans is less than 2.5 years, or the regulatory authorities determine that the bank's risk characteristics such as lending are obviously stricter than the inclusion criteria of relevant regulatory provisions. (highly volatile commercial real estate, HVCRE)
The processing method of HVCRE is introduced above. The third draft further explains the content of national self-determination in IRB Basic Law and Advanced Law. The purpose is to improve the risk sensitivity in this regard. IRB primary method and advanced method deal with HVCRE in the same way as IRB method in dealing with corporate loans in all aspects, and have separate risk weight functions. LGD, which cannot estimate HVCRE, and banks in loss given default must adopt the parameters specified by regulators for corporate loans. After the publication of the second working paper on securitization in June 5438+ 10, 2002, the Committee continued to strengthen exchanges with the industry on securitization, especially the internal rating method. In the last consultation, the bank expressed support for the main technical contents of the regulatory formula, but questioned some contents, that is, the coverage of highly subordinated positions, positions with extremely high repayment order and positions with extremely high credit quality by the regulatory agencies. As background information, the regulatory formula is mainly formulated for the sponsoring bank to determine the capital requirements of unrated securitization positions. Other banks can also use this formula, provided that they have the detailed information of the corresponding asset pool and get the consent of the regulatory authorities, because the formula requires the capital amount of IRB method as the main input parameter.
In the third draft, the Committee once again stressed that positions with high degree of subordination should be deducted from capital. The sponsoring bank must deduct all positions below KIRB's bottom line from its capital. Similarly, banks investing in securitization established by third parties must deduct positions with no rating and low credit from their capital. The Committee believes that this provision is necessary to provide incentives for banks that do not hold or assume such potentially high-risk positions. For most positions in securitization, the capital requirement of the credit risk model related to the regulatory formula is zero. The Committee believes that all forms of securitization will bring a certain degree of credit risk to banks, so when using the regulatory formula, the bottom line of capital requirements will continue to be set at 56 basic points. On the whole, according to the views of the industry, the Committee has simplified the regulatory scheme.
Regarding the convenience of liquidity, the framework of securitization has made some changes and supplemented the criteria for determining the convenience of liquidity. The capital requirements of IRB banks have also changed. When such banks propose liquidity convenience, they must continuously calculate the KIRB corresponding to the risk exposure of the asset pool. Otherwise, this risk must be deducted from the capital. The method of calculating KIRB depends on the category of corresponding risk exposure. For example, banks must calculate the IRB capital of each company's risk exposure in the asset pool (that is, the "bottom-up" method). In contrast, if the asset pool only includes retail assets or qualified enterprise receivables, the capital requirements of the entire asset pool can be calculated (that is, the "top-down" method).
Industry representatives welcome the use of the "top-down approach" to determine the capital requirements under the regulatory formula. However, they think its scope of application is narrow, because it only applies to unsecured receivables with a remaining maturity of less than one year. Otherwise, the receivable must be secured. Considering that securitization involves unsecured receivables with a long term, the requirement of one-year term can be relaxed in some cases. As long as the regulatory authorities think that adopting the "bottom-up method" is too complicated, banks can adopt the "top-down method" to calculate capital requirements. If the "top-down approach" is used outside the securitization framework, the remaining period of one year is still valid.
If it is unrealistic for banks to use "top-down method" and "bottom-up method" to calculate KIRB, in some cases, with the consent of the regulatory authorities, the standard banking method can be temporarily used to calculate the qualified capital with convenient liquidity. In order to encourage large international active banks and banks with high operational risk to adopt the AMA method with high risk sensitivity, the Committee plans to allow some of this method to be adopted. The third draft proposes that as long as all the important risks of banks can be included on the basis of global consolidation, banks can use basic index method or standard method to calculate the operational risks of some businesses and AMA to calculate the operational risks of other businesses. Unless otherwise stipulated by the regulatory authorities, once banks are allowed to use more advanced operational risk calculation methods, banks may not use other simpler calculation methods.
Another adjustment made by AMA is to recognize insurance as a risk mitigation tool for operational risks when calculating regulatory capital. Under the condition of meeting the minimum standards of the third draft, the insurance of banks can account for 20% of the operational risk capital requirements.
The results of Committee QIS3 show that the capital required by G- 10 National Bank to calculate operational risk by using simple methods (basic index method and standard method) generally meets the target of accounting for 65,438+02% of the current minimum regulatory capital. However, there are great differences between banks in different countries. In-depth analysis shows that the reason for this change lies in the relationship between total income and credit risk caused by loan interest income. For some banks, the capital requirements calculated by total income need to be double-calculated for credit risk capital requirements.
In order to avoid this situation, national regulatory authorities can decide to allow banks to adopt another standard method, as long as the regulatory authorities think this method is more effective, such as avoiding repeated calculation of various risks. The standard method introduces a coefficient based on the total amount of retail business and corporate business (loans and other bank account assets, not total income), assuming that the coefficients of other businesses remain unchanged. In addition, the bank did not subdivide the total income of six product lines, but adopted a conservative coefficient, namely 18%, to calculate the relative total income, thus finding a more conservative capital requirement.