Implementing Basel II/III in Russia
The Implementation of the Basel Capital Adequacy Framework (Basel II, Basel II.5 and Basel III) in Russia will require Russian Banks to further develop their Capital and Risk Management methodologies, systems and processes.
Specifics of the Russian adoption of the Basel Accords
- The final formulation of the application of Basel II/III into Russian regulation is not yet complete.
- Whereas European countries have been working continuously on implementation of these regulatory standards for more than 10 years, the Russian financial institutions face the challenge of implementing the three elements of the Basel Accord (Basel II, Basel 2.5 and Basel III) simultaneously.
- CBR is stricter than the Basel Committee in several areas, e.g., current capital adequacy ratios applied by CBR are 25% higher or treatment of subordinated debt. However, the requirements for Capital Conservation Buffer and Countercyclical Buffer have not yet been confirmed by CBR. Furthermore, Basel III excludes preferred shares from Common Equity Tier 1 Capital (CET1), but the CBR permits to include certain types of preferred shares into CET1.
- There are severe liquidity requirements in the form of 3 liquidity ratios in Russia, which are comparable with Basel III liquidity ratios to a certain extent.
- The CBR has already adapted several elements of Basel II, for instance, Simplified Standardized Approach for Credit risk, Simplified Approach for Market risk or Basic Indicator Approach for Operational Risk. Pillar II and Pillar III will be implemented not earlier than 2014 and 2013 respectively.
How will these regulatory initiatives impact the Russian financial industry? What are the main consequences of the changes in the regulatory environment? How will the Russian financial industry respond to these challenges?
Our brochure aims to provide the answers to some of these questions.