Basel 3 January 2012

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Basel iii ComplianceProfessionalsAssociation (BiiiCPA)
1200G Street NW Suite800Washington, DC 20005-6705USA
Tel: 202-449-9750Web: www.basel-iii-association.com
Basel III News,January 2012
Dear Member,
Interesting! Wehavethefirst important Basel iii templates.
We will start with thePost 1January 2018disclosuretemplate
From the BISConsultativedocument, Definition of capital disclosure
requirements, Issued for comment by 17February 2012, December 2011
Post 1January 2018 disclosure template
Thecommon template that the Basel Committeehasdeveloped is
designedto capture the capital positionsof banksafter the transition
period for the phasing-in of deductionsendson 1January2018
TheBasel Committeeproposesthat banks should publish thecompleted
disclosuretemplatewith thesame frequencyasthepublicationof their
financial statements(typically quarterly or half yearly).
Furthermore, it is proposedthat thecompleted disclosuretemplate
shouldeitherbeincludedin thebank’spublishedfinancialreportsor,at a
minimum, thesereports should providea direct link tothe completed
template on thebank’swebsite.
Banks should alsomake availableon their websitesan archiveof all
templatesrelatingto prior reportingperiods.
www.basel-iii-association.com

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Certainrowsarein italics. Theserowswouldbe deletedafter all the
ineligiblecapital instrumentshave been fully phasedout (from 1January
2022onwards).
Regardingthe shading (below):
-Each dark grey row introducesa new section detailing a certain
component of regulatorycapital.
-Thelight grey rowswithnothick border represent the sum cellsin the
relevant section.
-Thelight grey rowswitha thick border showthe main componentsof
regulatorycapital and the capital ratios.
Notes

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Disclosuretemplate during the transition phase
Theproposed template for use during the transitionphaseis thesameas
thesteadystatedisclosuretemplateset out in Section 1except for the
followingadditions(all of whichare highlightedin thetemplate below
usingcellswithdottedborders and capitalisedtext):
Anew column hasbeen added for bankstoreport the amount of each
regulatoryadjustment that is subject totheexistingnational treatment
during thetransitionphase(labelledasthe “pre-BaselIII treatment”).

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Example- Row 8: In 2014banks will be required tomake 20% of the
regulatory adjustmentsin accordancewithBasel III.
Considera bank with“Goodwill, net of relatedtax liability” of $100mn
and assume that thebank isin a jurisdiction that doesnot currently
requirethis tobe deducted from common equity.
Thebank wouldreport $20mn in the first of thetwoemptycellsin row 8
and report $80mn in the second of thetwocells.
Thesum of thetwocellswill thereforeequal thetotal Basel III regulatory
adjustment.
While thenew column showsthe amount of each regulatory adjustment
that is subject totheexistingnational treatment, it is necessaryto show
howthisamount is included under existingnational treatment in the
calculationof regulatory capital.

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Therefore, new rowshave been added in each of thethree sectionson
regulatory adjustmentstoalloweach jurisdictionto set out their existing
national treatment.
Example- Betweenrows26and 27:
Considera jurisdictionthat currentlyfiltersout unrealisedgainsand
losseson holdingsof AFS debt securitiesand consider a bank in that
jurisdictionthat hasan unrealisedlossof $50mn.
Thetransitional arrangementsrequire this bank to recognise20% of this
loss(ie $10mn) in 2014.
This meansthat 80% of this loss(ie$40mn) is not recognised.
Thejurisdictionwouldthereforeincludea row betweenrows26and 27
that allowsbankstoadd back thisunrealised loss.
Thebank wouldthenreport$40mn inthisrowasanadditiontoCommon
EquityTier 1.

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Example- Betweenrows41and 42:
Assume that thebank described in the bullet point above isin a
jurisdictionthat currentlyrequires goodwill to be deducted from Tier 1.
This jurisdictionwouldinsert a new row in betweenrows41and 42, to
indicatethat duringthe transition phasesome goodwill will continueto
bededucted from Tier 1(in effectAdditional Tier 1).
The$80mnthat thebank hadreportedin thelastcellofrow8,wouldthen
need to be reported in this new row insertedbetweenrows41and 42.

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Example– Row 60:
Totake account of the fact that the existingnational treatment of a Basel
III regulatory adjustment may be toapplya risk weighting, jurisdictions
wouldalsobe abletoadd new rowsimmediatelyprior tothe row on risk
weightedassets(row 60).
Theserowswouldneedtobedefinedbyeach jurisdictiontolist theBasel
III regulatory adjustmentsthat are currentlyrisk weighted.

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Example:Consider a jurisdictionthat currentlyrisk weightsdefined
benefit pension fund net assetsat 200% and in 2014a bank has$50mn of
theseassets.
Thetransitional arrangementsrequire this bank todeduct 20% of the
assetsin 2014.
This meansthat the bank will report $10 mn in the first empty cell in row
15and $40 mn in the second emptycell (the total of the two cellstherefore
equalsthe total Basel III regulatory adjustment).
Thejurisdictionwoulddisclosein one of the insertedrowsbetweenrow
59and 60that suchassetsare risk weightedat 200% during the
transitional phase.
Thebank wouldthen report a figure of $80mn ($40mn * 200%) in that
row.

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Financial stability and risk disclosure
Keynote addressbyMr Jaime Caruana, General Managerof the BIS,to
theFSB Roundtableon risk disclosure, Basel, 9December 2011.
Abstract
High-qualityrisk disclosureis good for markets,becauseit helps
investorsmake more informeddecisions.
It is good for prudential supervisors,becauseit makesbanksmore
accountabletoboth supervisorsand investors.
And it isgood for financial stability, becauseit reducesthechancethat
unexpected eventswill disrupt the system.
To be effective in promoting market discipline, disclosure must be
complemented by strong incentives for counterparties to engage in
monitoring.
Thepublic sector's role in promoting transparencyarisesfrom a number
of market failures,includingthe externalitiestobe gained from common
standards,the"freerider" problemsthat may leadtotoolittleinvestment
in producingand gatheringfinancial information, and thetendencyof
marketsto overreact tobad newswhenthe information environment is
clouded.
Guidedby theseconsiderations,the Financial Stability Board and the
Basel Committeeon BankingSupervision have long supported
improvementsin transparency, through their workon
accounting, disclosuretemplatesand aggregate market data.
At thesametime, industryand investorrepresentativesneedtoplayakey
rolein developing disclosurestandards.

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Accounting standards need to converge, standards for the discussion and
analysis that accompany financial statements need to be established, and
externalauditorsneed to insist on higher-qualityrisk disclosures.
Full speech
Good morning, and welcometoBasel. We are meeting at a time of great
turbulenceand uncertaintyin the global economy and financial system.
But althoughall of usarefocusedonimmediatechallengesandrisks,it is
important not tolosesight of the need tocarry forward our longer-term
agendatowardsbuildinga better, stronger financial system.
Your discussionstodayare an essential part of makingprogresson this
agenda.
If wecan achievea significant improvement in thequality, comparability
andtimelinessof risk disclosuresby financial firms, thiswill without a
doubt help break theviciouscyclesof contagion, asset salesandpullback
from risk-takingthat have paralysed marketsrepeatedlyover the last few
years.
Thethree pillarsof BaselII continueto guideour effortsto strengthen
financial regulationin the BaselIII era and beyond.
We'venow accomplisheda great deal on Pillar 1- minimum capital
requirements.
The task now is to follow through on Pillar 2 bystrengthening supervisory
review, with a focus on firm-wide risk management and risk governance,
and on Pillar 3 disclosures,by improvingmarket discipline.
And while Pillar 3 is a good stepin the right direction, achievingour
overall objectiveof stronger market disciplinewill require effortsthat go
beyond strictlyregulatoryapproaches.

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How do wepromote market discipline?
First, weneed to make sure that the market hastheinformation it needs.
And a key element of market information is sound, consistently
high-qualityriskdisclosures.
That will be thesubject of my remarks, and of coursethetheme of your
discussionstoday.
But I should alsopoint out that market disciplineonlyworkswhen
investorshavetheright incentivestousetheinformation, and bankshave
theright incentivestotake account of thesignals sent by themarket.
For theseincentivestobe right, theperception of a public safety net for
banksthat are "toobig to fail" needstobe eliminated.
Thispointstotherelevanceof theworkbytheFSB and Basel Committee
toreducemoral hazard by increasinglossabsorbency, strengthening
resolutionproceduresand enhancingsupervisoryintensityfor
systemicallyimportant banks.
If wesuccessfullyfollowthrough on this work,then investorswill have
stronger incentivestodevelop a comprehensivepicture of therisksand
exposuresfacing financial institutions,and the banks should facemore
pressure tobe asaccurate and transparent aspossibleabout these
exposures.
TheFSB and the Basel Committeehave long supported sound
accountingand robust disclosure standardsand practices.
Examplesincludetherisk disclosuretemplate for structured credit
productsset out in theFinancial StabilityForum'sreport tothe G7 in
April 2008, the BaselCommittee'sworkon Pillar 3 disclosures,and the
more recent worktoencourage sound expected-lossprovisioningrules
and related disclosures.

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Sound standards and practicesenhancethequalityof information
availabletoinvestors,depositorsand othermarket participants,aswellas
toprudential authorities and regulators- includingabout risk
exposures,risk management practicesand policies,governance, and
capital measuresand ratios.
Thiscanleadtogreatertransparencythat cansupport market
confidence, improvemarket disciplineand facilitatesound risk
management practicesby financial firmsand other companies,and has
thepotential tolead to more consistent practicesover time.
Together witheffectivesupervision, these canhelp tofoster safeand
soundbanking systems and more stablefinancial markets.
We should recognise the limitationstowhat improved informationabout
riskscan achieve.
Theeconomyand thefinancial system arealwayschangingand
evolving, and our understanding of key relationshipsstrugglestokeep up.
Risksoftenappearpreciselyintheareastowhichmarket participantsand
public authoritieshave paid the leastattention, and about whichtheyhave
demanded the least accurateinformation.
Given theselimitsto our understanding, weneed tobe prudent.
This means protecting the system against the unknown and
unexpected, for example by strengthening capital and liquidity buffers at
institutionsand initial margin in traded markets.
Nevertheless, strengthened, transparent disclosure isgood for
markets, becauseit helps investorsmake more informed decisions.
It isgoodforprudential supervision, becauseit helpstomakebanksmore
accountable,both to supervisorsand investors.

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And it isgoodforthestabilityofthesystem asawhole,becauseit reduces
thechancethat unexpectedeventswill causemajor system-wide
disruptions.
We should not forget that the official sector hasa direct interest in
promotingfinancial stability through increasedtransparency; the
experienceof thepastfour yearshasremindedusof themanycoststhat a
poorlyfunctioningfinancial system can imposeon taxpayers and the real
economy.
Onemight think that market participantswouldnaturallyprovide
comprehensive, relevant disclosurein a timely manner, sinceit's in the
interest of investors,counterpartiesand institutions.But aswehave
seen, thisis oftennot thecase.
For example, duringthe ongoing turbulencerelatedto European
sovereigndebt, investorsand market analystshavestruggledtodevelop a
comprehensiveand reliableassessment of the exposures of financial
institutionstotroubledsovereignsthroughbond holdingsandderivatives
positions.
Someof the disruptionstobank fundingmarketshave reflected
scepticism astowhetherenough is known about theseexposures, aswell
asthe chain of exposuresrelated to them - banks' exposuresto other
banks,and soon.
We at theBISregularlypublishinformation on the aggregate exposures
of national financial systems, but of coursethis saysnothingabout the
networkof exposuresof individual institutions.
Lackingadequateinformationtoinform their risk assessments,providers
of fundshavenaturallypulledback from European financial firms of all
sorts- in the processunderminingthe stabilityof the system and putting
still greater pressure on banks and sovereigns.

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This suggeststhe public sector hasa keyrolein promotingmarket
transparency. Whenever one suggeststhepublic sectorshould do
something, it'sgood practicetoidentify the specificmarket failures that
impel public action.
With respect to risk disclosure,I wouldemphasisethe followingones.
First, common standardshave externalities.
Just aseveryone benefits from common weightsand measuresin the
physical world, orfrom common standardsforelectronic media like DVD
encoding, there's a social benefit from financial statementsfollowinga
singlestandard, includingkeyconcepts,common definitionsand
principles,and, totheextent possible, common formats.
In some cases,collaborativeeffortsby the industry can generate the
needed standards;in others,especiallywherethe subject matter is
complex and there isa widerangeof interestedparties, some of whom
may not support full, timely transparency, thepublic sector must play a
role.
Second, producing and gathering financial information aresubject to
"freerider" problems.
It's costlytoproduce, interpret and analyse information from disclosures.
But if one investor or counterparty doesso, pricesadjust and others
benefit from it. Sowhile investorscan and do make money from carefully
studying publicly availableinformation, there's still an incentiveto "free
ride" - towait for someoneelseto gather relevant information, then to
sharein the benefit by tradingon it.
And preparersmay facesimilar incentivesto wait for othersbefore
providinguseful information about their risk exposures and risk
management practices.

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As a result, everyone in the market may just watcheach other, insteadof
makingtheinvestment in producingand obtainingaccurateinformation.
There's no wayto completelyeliminatesuch free-ridingfrom markets,
but establishingcommonstandardsgoespart way,byreducingthecosts-
in time, effort and resources- neededtoproduceand acquire
market-relevant information.
We want toseea richer array of information made availablethat isless
costlytocollect, more widelyavailableto market participants,more
usableand more comparable.
This should help takeus towardsmarketswherepricesare moved
primarilyby new information, rather than by herd behaviour, leverageor
sudden shiftsin riskappetites.
Third, if theinformationenvironment ismurky, thenmarketsoverreact to
badnews.
We saw this in the 2007-09 crisis- whenever problemswere discovered in
one asset class, or one institution, investors started to scrutinise similarly
placed assetsor institutions,and downgradedtheir valuationsof them.
This sometimesled to a self-fulfillingprocessthat madethingsstill
worse.
Thesame hashappenedin sovereign debt crises, includingthe current
challengesin Europe - whenone country getsintotrouble, investors
immediatelylook around toseewho's next.
This creates a kind of collective action problem - it makes sense for each
player individuallyto pull back, but when manyplayers do this the impact
is devastatingfor themarket asa whole.

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Greater transparencyis one waytohelp break this cycle, by making it
possiblefor investorsto seemore preciselywhere, and whether,their
concernsare justified.
Saying there is a public sector role in promoting transparency, for the
reasons I've just laid out, is not the same as saying that strengthening
transparencyisthepublic sector'sjob alone.
Indeed, industryand investor effortsneed to be at the centreof
developing standards, sincethis will ensure that new requirementshave
theproper technicalgroundingand a strong buy-in by market
participants.
Thepublic sector can contributeby catalysingprivate sectoreffortsand
bydirectingthoseeffortsin fruitful directions.
At thesametime,however,if theprivatesectordoesnot stepin toaddress
theseissuesadequately, supervisoryand regulatory authoritiesmay need
toundertake further reforms toimprove disclosurestandardsand
practices.
Alongside thisworkat the firm level, theinternational community has
alsobeen workingtoimprovetransparencyby strengtheningthe
collection, aggregationand disseminationof financial sector data.
TheBIS, together withthe Committeeon the Global Financial
System, haslongperformed thisrolewithrespect to cross-border
bankingand OTC derivativesmarket activity.
Looking forward, the FSB has made substantial progress in developing a
data framework that facilitates monitoring of key interlinkagesamong the
major global banksin a consistent manner.
While thisproject is still verymuch workin progress,it is notablethat
national authoritiesand theFSB are consideringstoring and pooling the

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datacollectednationallyonaharmonisedbasisinacentralhub, proposed
tobe hosted by the BIS.
TheFSB and national supervisorsare alsoworkingtomake sure that the
shift of derivativesmarket activityto central tradingand clearing
platformsleadstoa greater availabilityof useful market-leveldata on
activityin theseinstruments.
Also, followingthe FSBrecommendationearlier thisyear, theFSB's
StandingCommitteeon theAssessment of Vulnerabilities,whichI
chair, is alsoassessingwhethernewlyidentifiedrisks could benefit from
improved risk disclosurepractices.
But even asweworkto improve theassessment of risks and the
availability and qualityof aggregated industryand market data through
effortsby the official sector,strengthened disclosuresby individual
institutionsstill offer themost promisingbenefitsin termsof
strengtheningfinancial stability.
Going forward, I wouldemphasisea number of key challenges:
Followingthrough on convergenceof IASB and FASB accounting
standards, includingtheir riskdisclosurerequirements.
Progressin converging the twomain international accountingstandards
frameworkswill help ensurethat userscan make meaningful
comparisonsacrossinstitutionsand entities operatingin multiple
jurisdictions.
Developingstandardsforthediscussionandanalysisthat firmsprovideto
complement thefigures in thefinancial statements.
Common standardscan be useful not only for financial data, but alsofor
theinterpretationsgiven to them.

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Disclosuresoftenseek to provide information "through theeyes of
management" that reflectshow organisationsmeasure and managetheir
risks.
Whilethisapproachcanbehelpful in understandingbusinessmodelsand
riskmanagement practices,it canleadtodisclosureof informationthat is
not comparable acrossfirms, and therefore difficult for investorsand
regulatorybodies toassess.
Strengtheningthe contribution of external auditsto thequalityof risk
disclosures.
What is thedegreeof assurancethat auditorsprovideabout public
disclosures,includingthosein financial statements,managements'
discussionand analysissectionsof financial reports, and risk information
on their clients' websites?
Towhat extent, and in what ways, dothey review or audit theaccuracy
andreliabilityof thefinancial reportsthat theyexamine, and howdothey
report on their assessmentsand findingsto the public?
Thesearedeep questionsabout how to best evolve the audit function as
financial systems and investor needsevolve, and theywon't be resolved
overnight.
Theyneedtobeaddressed, however,if wearetoclarify andtostrengthen
therole of auditorsin promoting transparencyat firms.
Thediscussionsat the FSB Roundtabletodaywill mark important steps
towardsprogressin many of theseareas.
I am confident theFSBand itsstandard-settingbodies areup tothe
task,and I encourage key stakeholdersin the private sector to join
together toencourage and tosupport better, more transparent risk
disclosurepractices.

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Core principles for effective banking supervision
BISConsultativedocument, December 2011
TheBaselCommitteeonBankingSupervisionhasissuedforconsultation
itsrevised Coreprinciplesfor effectivebankingsupervision.
Theconsultativepaper updatesthe Committee's2006Coreprinciplesfor
effectivebanking supervisionand theassociatedCore principles
methodology(assessment methodology).
Both the existingCore Principlesand theassociatedassessment
methodologyhaveserved their purposewellin termsof helpingcountries
toassesstheir supervisorysystems and identify areasfor improvement.
While consciouseffortsweremade to maintain continuity and
comparability asfar aspossible, the Committeehasmerged theCore
Principlesand the assessment methodology intoa singlecomprehensive
document.
Therevisedset of twenty-nineCorePrincipleshavealsobeenreorganised
tofoster their implementationthrough a more logical structure,
highlightingthe differencebetweenwhat supervisorsdothemselvesand
what theyexpect banks todo:
Principles1to13 addresssupervisorypowers,responsibilitiesand
functions,focusingon effectiverisk-basedsupervision, and theneed for
earlyintervention and timelysupervisoryactions.
Principles14to29 cover supervisoryexpectationsof banks, emphasising
theimportanceof good corporategovernanceand risk management, as
well ascompliancewith supervisorystandards.
Important enhancementshave been introducedintothe individual Core
Principles,particularlyin thoseareasthat are necessaryto strengthen
supervisorypracticesand riskmanagement.

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Variousadditional criteria havebeen upgraded toessential criteria asa
result, while new assessment criteria werewarrantedin other instances.
Closeattentionwasgiventoaddressingmany of the significant risk
management weaknessesand other vulnerabilitieshighlighted in the last
crisis.
In addition, thereview hastaken account of several key trendsand
developmentsthat emerged during the last few years of market turmoil:
theneed for greater intensityand resourcesto deal effectivelywith
systemicallyimportant banks;the importanceof applying a system-
wide,macroperspectivetothemicroprudentialsupervisionof banksto
assist in identifying, analysing and takingpre-emptiveaction to address
systemicrisk; and theincreasingfocuson effectivecrisis
management, recovery and resolution measures in reducingboth the
probability and impact of a bank failure.
TheCommitteehassought togive appropriate emphasistothese
emergingissuesbyembeddingthem intothe Core Principles,as
appropriate, and includingspecific referencesunder each relevant
Principle.
In addition, sound corporategovernance underpinseffectiverisk
management and public confidencein individual banks and the banking
system.
Givenfundamental deficienciesin banks' corporategovernancethat were
exposedin the last crisis, a new Core Principleon corporategovernance
hasbeen added in this review by bringing together existingcorporate
governancecriteria in the assessment methodology and givinggreater
emphasistosound corporate governancepractices.
Similarly, the Committeereiterated thekeyroleof robust market
disciplinein fosteringa safeand sound bankingsystem by expanding an
existingCore Principleintotwonew onesdedicated respectivelyto

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greater public disclosureand transparency, and enhanced financial
reporting and external audit.
As a result of this review, thenumber of Core Principleshasincreased
from 25to29.
There area total of 36new assessment criteria, comprising 31new
essential criteria and 5 new additional criteria.
In addition, 33additional criteria from theexistingassessment
methodologyhavebeen upgraded toessential criteria that represent
minimum baselinerequirementsfor all countries.
TheBasel Committeewelcomescommentson therevised Core
Principles.Commentsshould besubmittedbyTuesday20March2012by
email to: baselcommittee@bis.org.
Alternatively, commentsmay be sent by post to theSecretariat of the
Basel Committeeon BankingSupervision, Bank for International
Settlements,CH-4002Basel, Switzerland.
All commentsmay be publishedon the Bank for International
Settlements'swebsiteunlessa commenter specificallyrequests
confidential treatment.

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The 29 Core Principlesare:
Supervisory powers, responsibilities and functions
Principle1– Responsibilities, objectivesandpowers:An effectivesystem
of banking supervision hasclear responsibilitiesand objectivesfor each
authorityinvolved in thesupervision of banksand bankinggroups.
Asuitablelegal framework for banking supervision is in placeto provide
each responsibleauthoritywiththe necessarylegal powersto authorise
banks,conduct ongoingsupervision, addresscompliance withlawsand
undertake timelycorrectiveactionstoaddresssafety and soundness
concerns.
Principle2– Independence, accountability, resourcingand legal
protection forsupervisors: The supervisor possessesoperational
independence,transparent processes, sound governanceand adequate
resources,and is accountablefor the dischargeof its duties.
Thelegalframeworkforbankingsupervisionincludeslegalprotectionfor
thesupervisor.
Principle3– Cooperation and collaboration: Laws, regulationsor other
arrangementsprovidea framework for cooperation and collaboration
with relevant domestic authoritiesand foreignsupervisors.
Thesearrangementsreflect the need toprotect confidential information.
Principle4– Permissibleactivities: Thepermissibleactivitiesof
institutionsthat are licensedand subject tosupervision asbanks are
clearlydefinedand the useof the word“bank” in namesis controlled.
Principle5– Licensing criteria: The licensingauthorityhasthe powerto
setcriteriaand reject applicationsfor establishmentsthat donot meet the
criteria.

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At a minimum, the licensingprocessconsistsof an assessment of the
ownership structure and governance(includingthe fitnessand propriety
of Board membersand senior management) of thebank and its wider
group, and itsstrategic and operating plan, internal controls, risk
management and projected financial condition (including capital base).
Where the proposedowner or parent organsationis a foreignbank, the
prior consent of itshome supervisoris obtained.
Principle6– Transfer of significant ownership: The supervisor hasthe
powertoreview, reject and imposeprudential conditionson any
proposalsto transfersignificant ownership or controllinginterestsheld
directlyor indirectlyin existingbanksto other parties.
Principle7– Majoracquisitions: Thesupervisorhasthepowertoapprove
or reject (or recommend tothe responsibleauthoritythe approval or
rejectionof), and imposeprudential conditionson, major acquisitionsor
investmentsby a bank, against prescribedcriteria, includingthe
establishment ofcross-borderoperations,andtodeterminethatcorporate
affiliationsor structuresdonot exposethebank toundue risksor hinder
effectivesupervision.
Principle8– Supervisoryapproach: An effectivesystem of banking
supervision requiresthe supervisor todevelop and maintain a
forward-lookingassessment of Core Principlesfor EffectiveBanking
Supervisionthe risk profile of individual banksand banking groups,
proportionateto their systemic importance;identify, assessand address
risksemanatingfrom banks and thebanking system asa whole;have a
frameworkin place for earlyintervention;and have plansin place,in
partnershipwithotherrelevant authorities,totakeaction toresolvebanks
in an orderlymanner if theybecome non-viable.
Principle9– Supervisorytechniquesandtools:The supervisor usesan
appropriaterangeof techniquesand toolsto implement the supervisory

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approachand deploys supervisoryresourceson aproportionate basis,
takingintoaccount the riskprofileand systemic importanceof banks.
Principle10– Supervisoryreporting:The supervisor collects,reviewsand
analysesprudential reportsand statisticalreturnsfrom bankson both a
soloand a consolidatedbasis,and independentlyverifies thesereports,
through either on-site examinationsor use of external experts.
Principle11– Corrective and sanctioningpowersof supervisors: The
supervisoractsat an earlystageto addressunsafeand unsound practices
or activitiesthat could pose riskstobanksor tothe bankingsystem.
Thesupervisor hasat its disposal an adequaterangeof supervisorytools
tobring about timely correctiveactions.
This includesthe ability torevokethe banking licenceor to recommend
itsrevocation.
Principle12– Consolidated supervision: An essential element of banking
supervision is that thesupervisorsupervisesthebanking group on a
consolidatedbasis, adequately monitoring and, asappropriate, applying
prudential standardsto all aspectsof thebusinessconducted by the
bankinggroup worldwide.
Principle13– Home-host relationships:Home and host supervisorsof
crossborderbankinggroupsshareinformationandcooperateforeffective
supervision of the group and group entities,and effectivehandlingof
crisissituations.
Supervisorsrequire thelocaloperationsof foreign banksto be conducted
tothe same standardsasthoserequired of domesticbanks.

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Prudential regulations and requirements
Principle14– Corporate governance: The supervisor determinesthat
banksandbankinggroupshaverobust corporategovernancepoliciesand
processescovering, for example, strategicdirection, group and
organisational structure,control environment, responsibilitiesof the
banks’Boardsand senior management, and compensation.
Thesepoliciesand processesare commensurate with the risk profile
and systemic importanceof thebank.
Principle15– Riskmanagement process: The supervisor determinesthat
bankshave a comprehensive risk management process(including
effectiveBoard and senior management oversight) to
identify, measure, evaluate, monitor, report and control or mitigateall
material risks on a timely basis and toassessthe adequacyof their capital
and liquidityin relationtotheir risk profile and market and
macroeconomicconditions.
This extendsto development and reviewof robust and crediblerecovery
plans,which takeintoaccount the specificcircumstancesof the bank.
Therisk management processis commensurate with the risk profile and
systemic importanceof thebank.
Principle16– Capital adequacy: Thesupervisorsetsprudent and
appropriatecapital adequacyrequirementsfor banksthat reflecttherisks
undertaken by, and presentedby, a bank in thecontext of the marketsand
macroeconomicconditionsin whichit operates.
Thesupervisor definesthe componentsof capital, bearing in mind
their abilityto absorb losses.
Principle17– Credit risk: The supervisor determinesthat bankshave an
adequatecredit risk management processthat takesinto account their
risk appetite, risk profile and market and macroeconomicconditions.

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This includesprudent policiesand processesto
identify, measure,evaluate, monitor, report and control or mitigate
credit risk (includingcounterpartycredit risk) on a timelybasis.
Thefull credit lifecycle should be covered includingcredit
underwriting, credit evaluation, and theongoing management of the
bank’sloan and investment portfolios.
Principle18– Problem assets, provisionsand reserves: The supervisor
determinesthat banks have adequatepoliciesand processesfor the early
identificationand management of problem assets, and themaintenance
of adequateprovisionsand reserves.
Principle19– Concentration risk and largeexposure limits:The
supervisorsdeterminesthat bankshave adequatepoliciesand processes
toidentify, measure, evaluate, monitor, report and control or mitigate
concentrationsof risk on a timelybasis.
Supervisorsset prudential limitsto restrict bank exposurestosingle
counterparties or groupsof connected counterparties.
Principle20– Transactionswithrelatedparties: In order toprevent
abusesarisingin transactionswithrelated parties and to addressthe risk
of conflict of interest, the supervisor requires bankstoenter intoany
transactionswithrelated parties on an arm’slength basis; tomonitor
thesetransactions;totake appropriate stepstocontrol or mitigate the
risks;and to writeoff exposuresto related parties in accordancewith
standard policiesand processes.
Principle21– Country and transfer risks: The supervisor determinesthat
bankshave adequatepoliciesand processesto
identify, measure, evaluate, monitor, report and control or mitigate
countryrisk andtransferrisk in their international lendingand investment
activitieson a timely basis.

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Principle22– Market risks:Thesupervisordeterminesthat bankshavean
adequatemarket risk management processthat takesintoaccounttheir
riskappetite,riskprofile, andmarket andmacroeconomicconditionsand
theriskof a significant deterioration in market liquidity.
This includesprudent policiesand processesto
market riskson a timelybasis.
Principle23– Interest rate riskin thebankingbook:The supervisor
determinesthat banks have adequatesystems to
interest raterisk in thebankingbook on a timelybasis.
Thesesystemstake intoaccount thebank’srisk appetite, risk profile and
market and macroeconomicconditions.
Principle24– Liquidityrisk:Thesupervisor setsprudent and appropriate
liquidityrequirements(whichcan includeeither quantitativeor
qualitativerequirementsor both) for banksthat reflecttheliquidityneeds
of the bank.
Thesupervisor determinesthat banks havea strategythat enables
prudent management of liquidityrisk and compliancewithliquidity
requirements.
Thestrategy takesintoaccount the bank’srisk profile aswell asmarket
andmacroeconomicconditionsand includesprudent policiesand
processes,consistent withthebank’srisk appetite, to
identify, measure, evaluate, monitor, report and control or mitigate
liquidityrisk over anappropriateset of time horizons.
Principle25– Operational risk: The supervisordeterminesthat banks
haveanadequateoperationalriskmanagement frameworkthat takesinto

38
account their risk appetite,risk profile and market and macroeconomic
conditions.
Thisincludesprudent policiesand processestoidentify, assess, evaluate,
monitor, report and control or mitigateoperational risk on a timely basis.
Principle26– Internal control and audit: The supervisor determinesthat
bankshave adequateinternalcontrolstoestablishand maintain a
properlycontrolledoperatingenvironment for theconduct of their
businesstaking intoaccount their risk profile.
Theseincludecleararrangementsfor delegatingauthority and
responsibility; separation of the functionsthat involve committingthe
bank, paying awayitsfunds, and accountingfor itsassetsand liabilities;
reconciliationof theseprocesses;safeguardingthebank’sassets;and
appropriateindependent internal audit and compliancefunctionstotest
adherencetothesecontrolsaswell asapplicablelawsand regulations.
Principle27: Financial reportingand external audit: The supervisor
determinesthat banks and banking groupsmaintain adequateand
reliablerecords,prepare financial statementsin accordancewith
accountingpoliciesandpracticesthat are widelyacceptedinternationally
and annuallypublish informationthat fairlyreflectstheir financial
condition and performanceand bearsan independent external auditor’s
opinion.
Thesupervisor alsodeterminesthat banks and parent companiesof
bankinggroupshave adequategovernanceand oversight of the external
audit function.
Principle28– Disclosure andtransparency: The supervisordetermines
that banks and banking groupsregularlypublish informationon a
consolidatedand, whereappropriate, solobasisthat iseasilyaccessible
and fairly reflectstheir financial condition, performance, risk exposures,

39
risk management strategiesand corporategovernancepoliciesand
processes.
Principle29– Abuse of financial services: Thesupervisordeterminesthat
bankshave adequatepoliciesand processes,includingstrict customer
duediligencerulestopromotehigh ethical and professional standardsin
thefinancialsectorandprevent thebank frombeingused, intentionallyor
unintentionally, for criminal activities.
TheBasel iii ComplianceProfessionalsAssociation (BiiiCPA) is the
largest associationof Basel iii Professionalsin theworld. It is a business
unit of theBasel ii ComplianceProfessionalsAssociation (BCPA), which
is alsothe largest associationof Baselii Professionalsin theworld.

40
Basel III SpeakersBureau
TheBasel iii ComplianceProfessionalsAssociation (BiiiCPA) has
established the Basel III Speakers Bureau for firmsand organizations
that want to accessthe Basel iii expertise of Certified Baseliii
Professionals(CBiiiPros).
TheBiiiCPAwill be the liaisonbetweenour certified professionalsand
theseorganizations,at nocost. We stronglybelievethat this can be a
great opportunityfor both, our certified professionalsand theorganizers.
Tolearnmore:
www.basel-iii-association.com /Basel_iii_Speakers_Bureau.html
Certified Basel iii Professional (CBiiiPro)
Distance Learning and Online Certification Program.
TheCost: US$297
What is included in this price:
A.Theofficial presentationsweuse in our instructor-led classes(1426
slides)
You can find the coursesynopsis at:
www.basel-iii-association.com/ Course_Synopsis_Certified_Basel_III_Pr
ofessional.html
B. Up to3 OnlineExams
There is onlyone exam you need topass, in order tobecomea Certified
Basel iii Professional (CBiiiPro). If you fail, you must study again the
official presentations,but you donot need to spend moneytotry again.
Up to 3 examsareincludedin the price.

41
Tolearnmore you may visit:
www.basel-iii-association.com/ Questions_About_The_Certification_An
d_The_Exams_1.pdf
www.basel-iii-association.com/ Certification_Steps_CBiiiPro.pdf
C. PersonalizedCertificateprinted in full color.
Processing, printingand posting toyour office or home.
Tobecome a CertifiedBaseliii Professional (CBiiiPro) you must follow
thestepsdescribedat:
www.basel-iii-association.com/ Basel_III_Distance_Learning_Online_C
ertification.html

Basel 3 January 2012

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