From

Basel I to Basel III

Basel I
Capital adequacy framework : Credit risk Fixed risk weights Market risk DeniAon of capital

Basel II
Capital adequacy framework: Credit risk Market risk OperaAonal risk Menu of more risk- sensiAve approaches Supervisory review process Disclosure requirements

Basel III
Capital adequacy framework: BeFer capital base Improved risk coverage (market risk, counterparty credit risk, credit raAng agencies) Leverage raAo Reducing Pro-cyclicality Dealing with SIFIs New Liquidity framework: Short-term raAo (LCR) Longer-term raAo (NSFR)

Capital: Raising quality, consistency and transparency of the capital base

DeniAon of capital strengthened DeducAons from capital harmonized Quality of Tier 1 and Tier 2 enhanced Tier 3 eliminated New raAos with greater focus on higher quality capital:
4.5% common equity/RWAs 6 % Tier 1 capital/RWAs
9

8
4%

2%

6
5 4 3 2 1 0 Basel II Basel III
2% 4.5%

Tier 2 Other Tier 1 Common Equity Equity or other

Total capital/RWA unchanged (8.0%)

Higher Quality of Capital

Capital: from Basel II to Basel III

Basel II Basel III

Other Liabilities
T3: market risk trading book RWA: greater risk recognition

Other Liabilities Book Assets

Total Regulatory Capital 8% of RWA Tier 1 4% of RWA

Book Assets
Risk-weighted Assets (RWA)

Tier 2

Hybrid Tier 1 Preferred Tier 1

T2 (more loss absorption) Other T1 (idem) Common Equity Tier 1 4.5% of RWA Minority interests * MSR, DTA, etc. * Goodwill, Intangibles, etc.* * All deducted from Common Equity

8% of RWA 6% of RWA

Common Equity Tier 1

Goodwill, Intangibles, etc.* * Deducted from both Tier 1 and Tier 2

Regulatory capital Some risk weights Required CE/RWA Required T1/RWA

Issue more CE Retain prots and/or Reduce RWA 3

Capital Conserva@on Buer

11

On top of the regulatory minimum Calibrated at an addiAonal 2.5% of RWA Must be met with common equity, aber the applicaAon of deducAons Banks are allowed to draw on the buer during periods of stress But constraints on earnings distribuAons (bonuses and dividends) increase as capital raAos approach the minimum requirement
NaAonal discreAon for calibraAng the schedule for the applicaAon of constraints and for the deniAon of constraints?

10

Illustrative Minimum Profit Retention Rates: 0%

Conservation Buffer

20% 40% 60% 80% 100%

0
Tier 2 Other Tier 1 Common Equity

Countercyclical Buer (proposal s@ll in discussion)

Countercyclical buer expands the conservaAon buer Can be met with common equity and other fully loss absorbing capital (?) PenalAes for falling inside the buer range: the same as for the conservaAon buer restricAons on earnings distribuAon (but 12 months are given to comply before restricAons apply).
11 Illustrative Minimum Profit Retention Rates: 0% 9 Illustrative Minimum Profit Retention Rates: 0% 20% 40% 60% 80% 100%

10

Countercyclical Buffer

20%

40%

Conservation Buffer

Conservation Buffer

60%

80%

100%

0
Common Equity Common equity or other fully loss absorbing capital