On measures to implement Basel III and to regulate systemically important banks

As part of efforts to implement methods in line with the international standards to regulate bank activities under Basel III with regard to liquidity coverage ratio and additional capital adequacy requirements (capital buffers) the Bank of Russia hereby informs of the following.

Taking into account internationally established criteria, the Bank of Russia has elaborated methods to determine systemically important credit institutions, which will be required to observe the liquidity coverage ratio and additional capital adequacy ratios according to Basel III. In line with these methods, the list of systemically important credit institutions may include ten credit institutions [1] .

As of 1 July 2015, the listed credit institutions (including Russian credit institutions — members of these groups) accounted for more than 60% of the Russian banking sector’s assets.

The liquidity coverage ratio (Basel III, hereinafter, the LCR) will be applied as a prudential ratio for systemically important banks according to Article 57 of the Federal Law ‘On the Central Bank of the Russian Federation (Bank of Russia)’ from 1 October 2015. The minimum ratio requirement will be set at 60%, with a phased-out 10-percentage point increase each year from 1 January 2016 to reach 100% on 1 January 2019.

In the periods of strain in the financial markets, Basel III allows the use of high-liquid assets to cover cash outflows decreasing the actual value of the liquidity coverage ratio below the minimum requirement without the need to apply sanctions for its violation. In its efforts to monitor the compliance with the LCR, the Bank of Russia will rely on the indicated provisions of Basel III. Decisions on the need to apply to banks supervisory measures in line with Basel III will be based on overall assessment, including, among other factors, the frequency and duration of ratio violations.

For systemically important banks — parents of banking groups, requirements to observe the LCR will be applied on a consolidated basis, for other systemically important banks — on an individual basis. The LCR calculation methodology mainly draws on the existing methodology established by Bank of Russia Regulation No. 421-P, dated 30 May 2015, ‘On the Procedure for Calculating Liquidity Coverage Ratio (Basel III)’.

To eliminate the shortage of high-quality liquid assets required for the LCR calculation, the Bank of Russia may open fee-based irrevocable credit lines at the request of systemically important banks and banks of respective banking groups. These lines may be secured by assets eligible for refinancing operations, including securities on the Bank of Russia Lombard List, gold and non-marketable assets.

The Bank of Russia plans to start applying increased ratios to the common equity (capital conservation buffer, countercyclical capital), envisaged in line with Basel III by Article 67 of the Federal Law ‘On the Central Bank of the Russian Federation (Bank of Russia)’, from 1 January 2016.

The capital conservation buffer is scheduled for the implementation for all credit institutions. With regard to credit institutions — parents of banking groups, this ratio will be implemented on a consolidated basis, and with regard to ordinary banks outside banking groups — on an individual basis. According to the phased-out implementation of Basel III requirements, the capital conservation buffer is set at 0.625% of risk-weighted assets (RWA) from 1 January 2016 and will be increased each subsequent year by an additional 0.625 percentage points to reach 2.5% on 1 January 2019.

The Bank of Russia will determine the levels and application procedure of countercyclical buffer for credit institutions. For 2016, the countercyclical buffer is assumed to be set at 0% of RWAs.

The systemic capital, established by the Basel Committee on Banking Supervision, will be also introduced from 1 January 2016. It will be set at 0.15% of RWAs with subsequent increases each year to reach 1% on 1 January 2019. For the above listed ten systemically important banks, this ratio will be implemented on a consolidated basis, and for banks outside banking groups — on an individual basis.

The mentioned capital adequacy ratios are not included in the required ratios. According to Article 23 of the Federal Law ‘On Banks and Banking Activities’, as a result of capital adequacy going below the required level of the capital adequacy ratio, after the latter’s increase by capital adequacy ratios, credit institutions’ rights to distribute profits and pay discretionary bonuses to their management will be limited.

^[1] In case a credit institution is a parent credit institution of a banking group, regulatory efforts are targeted at a respective banking group.

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