Conversely, unprofitable banks are a potential source of instability. •  Poor profitability and low retained earnings will inhibit banks in building up their capital buffers. •  Without sufficient capital buffers, banks may be less willing to lend, which may constrain the availability of financing to the economy. The Basel Committee is working hard at finetuning the Basel III capital rules: •  to reduce the variability in risk weighted assets applied by banks;  •  to revise the standardised approaches for credit and operational risk; and  •  to implement the leverage ratio. 4  BIS central bankers’ speeches  But in the course of adjusting the capital rules to better achieve these outcomes, it is important that the overall capital requirements on banks are not significantly increased. There is a real risk that overall capital requirements on banks could indeed increase significantly if we are not careful: •  if internal modelling for certain portfolios are completely removed; and  •  if risk weights and credit conversion factors under the revised standardised approach are calibrated too conservatively. We need to take a holistic perspective in this final stage of the Basel III capital reforms. •  In trying to get the design right, we must not end up making the overall level of capital requirements too high. •  In trying to get the micro calibrations right, we must not end up getting the macro settings wrong.
jurisdictions’  •  The United States and a number of Asian countries – including Singapore, Hong Kong, China and Japan were assessed to be compliant or largely compliant in their implementation of the Basel III capital standards. •  The European Union was, however, found to be materially non-compliant. •  As home to several of the largest global banks as well as important international financial centres, it is crucial that the EU shows leadership in ensuring more complete and consistent implementation of global banking rules. Regulatory reforms have generally been effective The regulatory reforms have been largely effective in meeting their intended outcomes. First, banks have become stronger. •  Banks are holding more and better quality capital. − Between 2009 and 2014, large, internationally active banks have doubled their average CET1 ratio from just under 6% to more than 11%. •  2  Banks are holding more liquid assets and have reduced leverage levels. BIS central bankers’ speeches  − Since the crisis, the average liquidity coverage ratio for large, internationally active banks has risen from about 80% to more than 120%. − Leverage has fallen from around 22 times of equity to about 16 times. Second, banks have become more resilient. •  Banking business faces serious challenges on several fronts. − The prolonged low growth, low interest rate environment has pressured net interest income. − Bouts of financial market volatility amidst a general contraction in market liquidity has increased the risks facing banks.