Q&A: Ryozo Himino on Basel’s RWA probe and the need for minimum standards

The Basel Committee’s newly formed standards implementation group is charged with monitoring how banks are adhering to the requirements of the Basel III accord. The chair of the group, Ryozo Himino, talks to Nick Sawyer about consistency with Basel minimums and the investigation into risk-weighted asset calculations

Ryozo Himino

Q&A: Ryozo Himino on Basel’s RWA probe and the need for minimum standards

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Q&A: Ryozo Himino on Basel’s RWA probe and the need for minimum standards

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Drawing up a comprehensive, internationally agreed set of bank capital and liquidity requirements is one thing. Making sure all 27 member countries of the Basel Committee on Banking Supervision implement it consistently, and over the same time frame, poses a different set of challenges altogether.

Historically, there has been a certain level of freedom given to national authorities to tweak aspects of the Basel rules to suit their local banking markets, or to stretch implementation dates beyond the agreed schedule. While the Basel Committee may have frowned on those that continually delayed implementation, in reality there was little scope to clamp down on any country.

That looks set to change for Basel III. Regulators are determined to ensure member countries implement the rules on time, and that local rules are consistent with the internationally agreed minimums. To that end, the Basel Committee published its first progress report on Basel III implementation last October, the start of an ongoing programme that will also include more in-depth country reviews. The aim is to rely on peer pressure – by publicly naming non-compliant countries, it is hoped local regulators will quickly fall in line.

There is another level to the monitoring exercise, though – ensuring individual banks are calculating risk-weighted assets (RWAs) consistently. Over the past year, a number of regulators, analysts and banks have drawn attention to apparent discrepancies in RWA figures, particularly between banks in the US and Europe, with some suggesting the calculation is open to manipulation. Others argue there may be good reasons for the discrepancies, including differences in accounting regimes and views on default probabilities.

The Basel Committee is aiming to settle the matter, and has set up two teams under its standards implementation group (SIG) to begin an investigation. Ryozo Himino, chairman of the SIG and deputy commissioner for international affairs at the Japanese Financial Services Agency, says it is too early to draw conclusions – but one outcome might be the setting of best-practice guidelines for banks and regulators.

Asia Risk: Some banks – and particularly those in Asia – claim they were unaffected by the crisis, and so should be given some latitude on Basel III compliance. Do you have any sympathy for that argument?

Ryozo Himino: I have heard this kind of argument. Several things may be said in response. First, one of the key elements of Basel III is better risk capture for those products and transactions that were at the heart of the recent financial crisis. So if you were not involved in those types of businesses, you will be less affected by the new regulations.

The second thing is that the crisis identified many weaknesses in the regulatory framework. This time, the crisis happened in Europe and the US, but Asia and Japan have both had their own crises. If we learn lessons from the crisis and identify weaknesses in regulation, it would be a common asset for the global community. Also, a crisis in one part of the globe can affect the whole world through financial and trade networks. So I think having a robust global financial system is in the interests of the whole world.

A number of differences are emerging in Basel III implementation. Some countries are adding to the minimum standards, while others are intending to apply the rules earlier than the mandated deadline. How important is it to achieve consistency of application globally?

The main priority for the SIG is the monitoring of Basel III implementation. It was started by a very strong initiative by Stefan Ingves, chairman of the Basel Committee, but it has strong support from the Basel Committee, the Group of Central Bank Governors and Heads of Supervision (GHOS) – which is the oversight body of the Basel Committee – the Financial Stability Board (FSB) and the Group of 20 (G-20) nations. Why is it important? The need to keep a level playing field is one element. But since Basel III is designed as a minimum standard, we are not policing doing more – just policing doing less. In that sense, the exercise will not result in a full level playing field.

The committee can apply peer pressure...but you cannot twist the arms of sovereign nations – there is a limit

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