On April 21, 2015, the Basel Committee on Banking Supervision agreed to eliminate certain national discretions from the Basel II capital framework. The use of national discretions can hinder comparability across jurisdictions and increase variability in risk-weighted assets. The Basel Committee has agreed to remove national discretions from the Basel II capital framework regarding: (i) the treatment of past due loans; (ii) the definition of retail exposures; (iii) transitional arrangements for corporate, sovereign, bank and retail exposures; (iv) the rating structure standards for wholesale exposures; (v) internal and external audit; and (vi) re-ageing. The national discretion for the internal ratings-based approach treatment of equity exposures will expire in 2016. The Basel Committee intends to monitor national discretions that are still available and consider whether more of them should be removed.
The Basel Committee also responded to a frequently asked question on funding valuation adjustment (“FVA”). The FAQ notes that a bank’s adoption of FVA should not have the effect of offsetting or reducing its “own credit” adjustment. A bank should continue to derecognize its debit valuation adjustment in full, whether or not it has adopted a funding valuation-type adjustment.
The press release is available at: http://www.bis.org/press/p150421.htm.