Three matters concern us: the elements of the new Basel III capital accord that have not yet been fully finalised; the Financial Stability Board’s work on the regulatory framework for the treatment of systemically important institutions; and the new powers of the Banco de España under the draft bill on the supervision of credit institutions, which will foreseeably be approved in the first quarter of next year. I shall begin with Basel III. The new capital accord improves the comparability and, thereby, the credibility of capital ratios. Basel III increases capital requirements with better-quality instruments, and it seeks consistency and a uniform application across banks and countries. It also adds two new prudential tools: one in the area of liquidity, and the other in that of leverage. First, the inclusion of the leverage ratio, the relationship between Tier 1 capital and exposure both on and off the balance sheet, i.e. the total banking book, without taking into account risk weights. Calculations are made at the consolidated level and, in principle, the level is set at a minimum of 3%. It is scheduled to come into force in 2018, although an earlier date will probably be set for the required disclosure of this figure. This new tool has been designed as a straightforward measure that complements and acts as a floor to the minimum risk-based capital ratio. It aims to provide additional protection against what is known as “model risk”, i.e.
underestimating the regulatory capital needed further to a calculation using the sophisticated models allowed by Basel II and III. On the more technical side, there appears to be agreement on the definition and calculation of the ratio, the treatment of derivatives and repos, and operations with CCPs. But doubts remain over its final calibration and how it affects certain business models, specifically those most centred on retail activity. The Banco de España has supported the setting of this leverage ratio in Pillar 1 on the understanding that it can be a good prudential tool, once correctly calibrated. In this respect, the monitoring period prior to its entry into force will provide information and experience. Although European regulations envisage that countries may apply this ratio as they deem fit until its harmonisation in 2018, it is not the intention of the Banco de España, in principle, to bring forward its application. As regards liquidity, Basel III has added new regulatory requirements: a short-term liquidity coverage ratio (LCR), and a long-term requirement, the net stable funding ratio (NSFR). BIS central bankers’ speeches  1  The short-term liquidity coverage ratio is designed so that banks may have an asset buffer with which to meet their maximum foreseeable liquidity or funding needs over a period of at least 30 days. As what is involved is a safety margin, this ratio might at times of stress be below 100% of such maximum foreseeable needs, which is the level demanded once the requirements come fully into force.