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The proposals differ in several ways from an initial set of proposals published by the Basel Committee on Banking Supervision (BCBS)in December 2014. That earlier proposal set out an approach that removed all references to external credit ratings and assigned risk weights based on a limited number of alternative risk drivers.
Respondents to the first consultative document expressed concerns, suggesting that the complete removal of references to ratings was unnecessary and undesirable. The Committee has decided to reintroduce the use of ratings, in a non-mechanistic manner, for exposures to banks and corporates. The revised proposal also includes alternative approaches for jurisdictions that do not allow the use of external ratings for regulatory purposes.
The proposed risk weighting of real estate loans has also been modified, with the loan-to-value ratio as the main risk driver. The Committee has decided not to use a debt service coverage ratio as a risk driver given the challenges of defining and calibrating a global measure that can be consistently applied across jurisdictions. The Committee instead proposes requiring the assessment of a borrower's ability to pay as a key underwriting criterion.
This consultative document also includes proposals for exposures to multilateral development banks, retail and defaulted exposures, and off-balance sheet items.
The Committee will conduct a comprehensive quantitative impact study (QIS) in 2016.
Prior to finalising the revised standardised approach by end 2016, the Committee will evaluate appropriate implementation arrangements, and will provide sufficient time for implementation taking into account the range of other reforms that have been, or are due to be, agreed by the Committee.
The Committee welcomes comments by Friday 11 March 2016