PwC's Managing upstream risk: Regulatory reform review - An asian perspective December 2013 | Page 13

partly in response to leverage concerns. We
expect a lot more to follow. In addition, as
demonstrated by the recent placement by
Lloyds in the UK, governments will also be
looking for early opportunities to offer their
stakes back to private investors as confidence
builds.

Update

EBA published on 9 December 2013 a followup review aimed at assessing the disclosures
made by 19 European institutions in response
to the Basel Pillar 3 requirements, as set
out in the EU CRD. The report focused, in
particular, on those areas where the need
for improvement had already been identified
in the past: namely scope of application,
own-funds and disclosures related to credit
exposures under the Internal Ratings Based
(IRB) approach, securitisation, market risk and
remuneration. The report highlighted some
improvements on scope of application and
own-funds, with an increase in information on
the differences between the accounting and
regulatory scope of consolidation, as well as
on the reconciliation between the accounting
own-funds and the capital instruments.
Nevertheless, improvements are still needed
on the applicability of disclosure requirements,
the granularity of deductions from capital,
and information on the terms and conditions
of capital instruments. On the other hand,
disclosures regarding credit exposures under
the IRB approach, securitisation activities
and market risk have showed only marginal
improvements. Disclosures on remuneration
were assessed as satisfactory, although
quantitative information should, in general, be
improved, especially regarding the breakdown
of remuneration outstanding by business lines
and vested and unvested amounts.

On 19 December 2013 the BCBC issued a second
consultation paper on revisions to the Basel
securitisation framework comprising a detailed
set of proposals, including draft standards text,
for a comprehensive revision of the treatment
of securitisation within the risk-based capital
framework. Relative to the first consultation,
the major changes in this consultative document
apply to the hierarchy of approaches, and the
calibration of capital requirements. For the
hierarchy, the Committee has proposed a simple
framework akin to that used for credit risk:

12. We also think investors should give them a
decent hearing– forced de-leverage on the
asset side leaves money on the table, and if
investors are put off by the dilutive effects
of de-leverage on the liability side they can
always re-lever their own portfolios.
13. In summary, while de-leverage take 1 was
all about asset contraction, in de-leverage
take 2 the emphasis needs to shift to capital
expansion.

• Where banks have the capacity and
supervisory approval to do so, they may

Banking | Regulatory Reform Review

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