Dear,
Three weeks ago, the Financial Stability Board issued the final version of the Total Loss-Absorbing Capacity standard for global systemically important banks (G-Sibs).
http://www.financialstabilityboard.org/2015/11/tlac-press-release/
This standard will have a profound impact in the reconfiguration of the Financial System, and in my opinion, the development of the SAP Banking industry.
But what is the Total Loss Absorbing Capacity Standard (TLAC) standard?
The TLAC standard is an evolution of the Basel III agreement, which establishes the Capital Requirements for 30 banks identified as global systemically important, and considered by the Basel Committee on Banking Supervision as “Too Big to Fail”.
According to the TLAC rule, From 1 January 2019, the Capital requirement for G-Sibs will be at least 16% of their risk-weighted assets (RWA's), increasing to at least 18% from 1 January 2022.
There's an exception, particularly relevant for Chinese banks, which establishes that emerging market G-SIBs must meet the 16% RWA minimum TLAC requirement no later than 1 January 2025, and the 18% RWA minimum TLAC requirement before 1 January 2028.
Considering that Basel III rules require banks to meet a minimum total capital ratio of 10.5% by 2019, the TLAC rule nearly doubles the Capital requirements for global systemically important banks.
But the current economic environment of limited growth, increasing competition and very low interest rates, supposes a serious handicap for generating profits. Doubling capital requirements in 3-4 years, will force the G-SIBs to raise capital from external sources.
On the other hand, this is also going to have an impact in the non-global systemically important banks, as the market will identify them as less solvent, increasing their cost of capital.
We've discussed here, that the Financial System started in 2008 a systemic change, from a model based in Volume, to a model based in Efficient Capital Management, the TLAC standard is just another milestone in the transformation process.
Recently, we visited a customer for a Bank Analyzer-IFRS 9 (impairment) presentation, and he mentioned that it was difficult to get the necessary budget for the implementation project, because the project was purely regulatory, without a direct impact on the business.
Big mistake, the new regulation, limited economic growth and over-leveraged economy are making capital very scarce.
Capital is the most critical resource of a bank; consequently, capital scarcity is driving the systemic transformation towards capital efficiency, with a very deep impact in the business strategy and processes.
If capital efficiency is the priority, banking information systems must be aligned with the new paradigm, supporting capital optimization activities.
Keep in mind that optimizing a resource starts by measuring accurately this resource and the processes consuming it. The Integrated Financial and Risk Architecture of SAP Bank Analyzer is the answer to the first requirement, and the robustness, completeness of the data model, and integration between the Transactional and Analytical components of SAP Banking is the answer to the second one.
That's why a Bank Analyzer IFRS (AFI) implementation should be identified as a business driven project. Managing a bank under the new paradigm, means managing the business processes with the objective of optimizing the capital consumption.
Impairment calculations measure the capital consumed due to the Expected Loss of a Credit Portfolio, and consequently, determine the capital available for lending an investing. If we don't understand this, we're not understanding the systemic change.
Join the SAP Banking community at: http://www.linkedin.com/e/gis/92860
Looking forward to read your opinions.
K. Regards,
Ferran.
Three weeks ago, the Financial Stability Board issued the final version of the Total Loss-Absorbing Capacity standard for global systemically important banks (G-Sibs).
http://www.financialstabilityboard.org/2015/11/tlac-press-release/
This standard will have a profound impact in the reconfiguration of the Financial System, and in my opinion, the development of the SAP Banking industry.
But what is the Total Loss Absorbing Capacity Standard (TLAC) standard?
The TLAC standard is an evolution of the Basel III agreement, which establishes the Capital Requirements for 30 banks identified as global systemically important, and considered by the Basel Committee on Banking Supervision as “Too Big to Fail”.
According to the TLAC rule, From 1 January 2019, the Capital requirement for G-Sibs will be at least 16% of their risk-weighted assets (RWA's), increasing to at least 18% from 1 January 2022.
There's an exception, particularly relevant for Chinese banks, which establishes that emerging market G-SIBs must meet the 16% RWA minimum TLAC requirement no later than 1 January 2025, and the 18% RWA minimum TLAC requirement before 1 January 2028.
Considering that Basel III rules require banks to meet a minimum total capital ratio of 10.5% by 2019, the TLAC rule nearly doubles the Capital requirements for global systemically important banks.
But the current economic environment of limited growth, increasing competition and very low interest rates, supposes a serious handicap for generating profits. Doubling capital requirements in 3-4 years, will force the G-SIBs to raise capital from external sources.
On the other hand, this is also going to have an impact in the non-global systemically important banks, as the market will identify them as less solvent, increasing their cost of capital.
We've discussed here, that the Financial System started in 2008 a systemic change, from a model based in Volume, to a model based in Efficient Capital Management, the TLAC standard is just another milestone in the transformation process.
Recently, we visited a customer for a Bank Analyzer-IFRS 9 (impairment) presentation, and he mentioned that it was difficult to get the necessary budget for the implementation project, because the project was purely regulatory, without a direct impact on the business.
Big mistake, the new regulation, limited economic growth and over-leveraged economy are making capital very scarce.
Capital is the most critical resource of a bank; consequently, capital scarcity is driving the systemic transformation towards capital efficiency, with a very deep impact in the business strategy and processes.
If capital efficiency is the priority, banking information systems must be aligned with the new paradigm, supporting capital optimization activities.
Keep in mind that optimizing a resource starts by measuring accurately this resource and the processes consuming it. The Integrated Financial and Risk Architecture of SAP Bank Analyzer is the answer to the first requirement, and the robustness, completeness of the data model, and integration between the Transactional and Analytical components of SAP Banking is the answer to the second one.
That's why a Bank Analyzer IFRS (AFI) implementation should be identified as a business driven project. Managing a bank under the new paradigm, means managing the business processes with the objective of optimizing the capital consumption.
Impairment calculations measure the capital consumed due to the Expected Loss of a Credit Portfolio, and consequently, determine the capital available for lending an investing. If we don't understand this, we're not understanding the systemic change.
Join the SAP Banking community at: http://www.linkedin.com/e/gis/92860
Looking forward to read your opinions.
K. Regards,
Ferran.
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