Basel Pillar 3 Disclosures (2024)

FAQs

What are the pillar disclosures of Basel 3? ›

Basel 3 is composed of three parts, or pillars. Pillar 1 addresses capital and liquidity adequacy and provides minimum requirements. Pillar 2 outlines supervisory monitoring and review standards. Pillar 3 promotes market discipline through prescribed public disclosures.

Pillar 3 requires that appropriate internal controls over the production of disclosures be in place. Additionally, banks must have an independent validation process. This is a regulatory requirement in certain jurisdictions; hence appropriate independent skilled resources need to be on hand to fulfil this role.

Quantitative disclosure

As per Basel III guidelines, the minimum regulatory Capital to Risk Weighted Assets Ratio (CRAR) to be maintained by the Bank as on 31st March 2023 is 9% [11.50% including Capital Conservation Buffer (CCB) of 2.50%] with minimum Common Equity Tier 1 (CET1) of 5.5% (8% including CCB).

Basel III regulation is designed to decrease damage done to the economy by banks that take on too much risk. Basel III was introduced following the 2008 Global Financial Crisisto to improve the banks' ability to handle any shocks from financial stress and strengthen both their transparency and their disclosure.

The key components of Basel III, including capital, liquidity, and leverage ratios, countercyclical capital buffer, and G-SIB surcharge, have been gradually implemented since 2013.

Federal regulations require the disclosure of all relevant financial information by publicly-listed companies. In addition to financial data, companies are required to reveal their analysis of their strengths, weaknesses, opportunities, and threats.

The three pillars of Basel III are market discipline, Supervisory review Process, minimum capital requirement. Basel III framework deals with market liquidity risk, stress testing, and capital adequacy in banks.

In Basel II, Capital Requirements were refined through Risk-weighted assets, tailoring capital allocation based on the riskiness of assets. Basel III elevated this concept by introducing Capital Buffers - the Capital Conservation Buffer, Countercyclical Capital Buffer, and Systemically Important Banks (SIB) Buffer.

B3E represents a sea change for the US banking industry, significantly altering the regulatory capital regime for US banks. The proposal would modify how the largest US banks think about regulatory capital and extends more granular, rigorous requirements to US regional and midsized banks.

What is Tier 1 capital in Basel 3? ›

Common Equity Tier 1 capital (CET1) is the highest quality of regulatory capital, as it absorbs losses immediately when they occur. Additional Tier 1 capital (AT1) also provides loss absorption on a going-concern basis, although AT1 instruments do not meet all the criteria for CET1.

Financial stability: The Basel III Endgame rules aim to make the banking system more resilient to economic shocks by requiring banks to hold more high-quality capital and maintain stronger liquidity positions.

Basel III was intended to strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage. The global capital framework and new capital buffers require financial institutions to hold more capital and higher quality of capital than under current Basel II rules.

To that end, Pillar 3 of the Basel Framework lays out a comprehensive set of public disclosure requirements that seek to provide market participants with sufficient information to assess an internationally active bank's material risks and capital adequacy.

Pillar 1: Capital Adequacy Requirements. Pillar 2: Supervisory Review. Pillar 3: Market Discipline.

The technical standards aim to ensure that stakeholders are well-informed about institutions' ESG exposures, risks, and strategies and can make informed decisions and exercise market discipline.

Pillar 2 ('input') calculations are derived from consolidated financial statements. This is the first time that tax payments/returns will have been directly driven from those accounts.