BIS central bankers’ speeches  1  The emerging global regulatory paradigm Following wide-ranging discussions and consultation, the global regulatory community has made progress to strengthen the resilience of the financial system. The Basel Committee on Banking Supervision has strengthened global minimum capital standards as part of its Basel III Framework. The Financial Stability Board (“FSB”) has released guidelines to reduce the risks posed by systemically-important financial institutions, or “SIFIs”. MAS welcomes the Basel III reforms. They will strengthen the resilience of individual banks during periods of stress, and in doing so, contribute to banking sector stability. Basel III is a major step forward in several areas: (i)  First, it strengthens capital requirements for trading activities, off-balance sheet vehicles, securitisation, and counterparty credit derivatives. (ii)  Second, it improves the quality of capital, with a greater focus on common equity to absorb losses. (iii)  Third, it raises the level of capital that banks will have to hold to absorb losses in both going-concern and unwinding scenarios. (iv)  Fourth, it introduces international liquidity standards for the first time, to make banks more resilient to short-term funding disruptions and longer-term liquidity mismatches. The FSB is finalising its recommendations for global systemically important financial institutions, or G-SIFIs. This will comprise a package of measures, the most important of which are quite clear:   First, G-SIFIs will have to meet higher capital requirements, above the Basel III minimums. This is to reflect the greater risk that their failure would pose to the financial system.
Research done by the Basel Committee shows that banks that failed or required government capital injections during the crisis had significantly lower levels of common equity than those banks that did not. MAS will enhance the quality of regulatory capital in our banks in the following ways: (i)  There will be an explicit Common Equity Tier 1 capital adequacy requirement, to be set at 6.5%. This will be fully phased in by 1 Jan 2015. (ii)  The Tier 1 capital adequacy requirement will be increased from 6% to 8%, to be phased in over the same period. The Total capital adequacy requirement will remain unchanged at 10%. (iii)  In addition to these minimum requirements, there will be a capital conservation buffer3, set at 2.5%, to be met with Common Equity Tier 1. This will be phased in between 1 Jan 2016 and 1 Jan 2019. (iv)  The new eligibility criteria for regulatory capital will also be phased in between 1 Jan 2014 and 1 Jan 2018. With these changes, locally-incorporated banks will be required to meet capital requirements that are higher than the minimum levels in Basel III. The requirements will apply at both the bank-group and bank-solo levels. Taking into account the capital conservation buffer, locally-  3  The capital conservation buffer is a Basel III requirement for banks to maintain a capital buffer that can be used to absorb losses during periods of stress.