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[...] Let me now turn to the issue of the finalisation of the Committee's post-crisis reforms. As you know, the Committee has spent the past two days working towards an agreement to finalise these post-crisis reforms. We have made very good progress and the contours of an agreement are now clear. At a high level this includes:
A revised standardised approach to credit risk. This will be more risk-sensitive than the current standardised approach and more consistent with the internal model-based approaches. It will also be neutral in terms of its capital impact;
The revised framework will largely retain the use of internal models but with the safeguards provided by input floors and revisions to the foundation IRB approach;
A revised standardised approach for operational risk will replace the four existing approaches, including the Advanced Measurement Approach, which is based on banks' internal models. I expect this will also be capital-neutral overall, but there will no doubt be increases and decreases in operational risk capital requirements for certain banks;
A leverage ratio surcharge for global systemically important banks will be introduced to complement the risk-based G-SIB surcharge;
Finally, I expect an aggregate output floor will be part of our package of reforms. It will be based on the standardised approaches and the final calibration of the floor is subject to endorsement by the GHOS.
It is important to note that a lengthy implementation and phase-in period is likely to be part of this package. This would allow for banks to migrate to the new framework in an orderly and manageable fashion.
Let me say a few final thoughts about the impact of these reforms, and specifically on (i) the goal of reducing excessive risk-weighted asset (RWA) variability; and (ii) "focusing on not significantly increasing overall capital requirements", which is probably a contender for the most quoted regulatory sentence of the year.
I am confident that the changes that the Committee has agreed move in that direction. But it should be clear that, to reduce RWA variability, changes in capital requirements are needed. This means that capital requirements may go down for some banks and go up for others. At the global, aggregate level, the impact is not significant, but it may well be significant for some banks.
I also want to clarify what I have in mind when I use the term "impact". The Committee has considered the impact of its proposals on both minimum capital requirements and banks' actual capital ratios. I expect that the aggregate capital shortfalls relative to minimum requirements will be small and relatively concentrated. The impact on capital ratios will be more diverse across banks and across jurisdictions. The net effect of these changes will be that published risk-based capital ratios will be far more robust and comparable across banks.