|1||The capital framework. The BCBS will publish later this year proposals for establishing higher capital requirements for complex structured credit products and short-term liquidity facilities extended to ABCP conduits. National and regional initiatives are also advancing. For example, the European Commission is currently discussing potential changes to the Capital Requirements Directive (CRD).||In January 2009, the BCBS issued two sets of consultative papers proposing (i) enhancements to the regulatory capital treatment for trading book exposures with the introduction of an incremental risk capital charge (IRC) and a stressed value-at-risk (VaR) requirement; and (ii) enhancements to all three Pillars of the Basel II framework including increased capital charges for re-securitizations and ABCP liquidity lines.|
|2||Liquidity risk management and regulation. On June 17, the BCBS issued for public consultation global guidance on the management and supervision of liquidity risks, expanding significantly on its 2000 paper on Sound Practices for Managing Liquidity in Banking Organizations. Local initiatives have also followed suit. The CEBS, for example, issued the second part of its Technical Advice on Liquidity Risk Management.||The BCBS published Principles for Sound Liquidity Risk Management and Supervision in September 2008. Implementation will be monitored by its Working Group on Liquidity with a first review slated for second half of 2009. It has also begun work to promote greater consistency of liquidity regulation and supervision for cross-border banking groups, including a review of tools, metrics, and benchmarks that can be used by supervisors.|
|3||Review of risk management. On April 16, the BCBS also announced the issuance of Pillar 2 guidance to strengthen risk management and supervisory practices, including stress-testing practices and capital planning processes. A consultative document will be issued around end-2008||The BCBS issued a consultative document in January 2009 aimed at strengthening risk management through Pillar 2. This focuses on enhancing firm-wide risk management; managing specific risk areas such as firm-wide risk concentrations, securitizations and reputational risk; and improving bank stress testing. The Senior Supervisors Group is reviewing implementation of the recommendations made in its report of March 2008, and expects to release a summary of findings in 2009.|
|4||Operational Infrastructure for OTC derivatives. In June, the Federal Reserve Bank of New York brought together major market participants and their supervisors to agree on an agenda to addressing weaknesses in this area, including through further standardization and automation of credit derivatives trade processing, and a central counterparty arrangement for credit default swap trades.||In October 2008, market participants released a letter outlining their commitment to and plans for building a stronger integrated infrastructure for OTC derivatives markets. In November, the President’ s Working Group announced initiatives to strengthen oversight and infrastructures for OTC derivatives including development of CDS central counterparties and an MOU among concerned national agencies. The IOSCO Task Force on Unregulated Financial Markets and Products is also looking at ways to introduce greater transparency and oversight in OTC derivatives markets.|
|5||Risk Disclosures by participants. Based on reports from its members, the FSF will assess in September how internationally active financial institutions have implemented the leading practice risk disclosures set forth in the FSF Report as part of their mid-2008 reporting, and whether national authorities’ strong encouragement to use recommended risk disclosure practices has been sufficient.||Supervisors and national authorities have strongly encouraged their internationally active financial institutions to use the leading risk disclosure practices recommended by the FSF. The BCBS consultative package on Basel II released in January 2009 aims to strengthen Pillar 3 disclosure standards for banks’ securitization activities. Also, IASB proposed enhanced disclosure requirements for valuations and liquidity risk in October 2008.|
|6||Accounting Standards for off-balance sheet entities (OBSEs). The IASB has accelerated its Consolidation project, which identifies when an entity should be brought on to another entity’s balance sheet, and its Derecognition project, examining when assets should be removed from the balance sheet. It will issue for consultation exposure drafts on consolidations project by end-2008, and on derecognition proposals shortly thereafter.||The IASB proposed in December 2008 revised standards for the consolidation of OBSEs and disclosure of related risk exposures. IASB also plans to publish its derecognition proposals by March 2009. The BCBS consultative package on Basel II released in January 2009 includes proposed Pillar 3 disclosures about sponsorship of OBSEs.|
|7||Valuation: The IASB established an expert advisory panel to review best practices in valuation and formulate additional guidance on valuation methods when markets are no longer active. In parallel, the BCBS is developing guidance to enhance supervisory assessments of banks’ valuation processes.||The IASB finalized guidance on sound practices for valuation of complex securities and other financial instruments and related disclosures and issued a proposal to enhance valuation disclosures in October 2008. In November 2008, BCBS released a consultative paper Supervisory Guidance for Assessing Banks’ Financial Instrument Fair Value Practices, which provides guidance on strengthening valuation processes for bank financial instruments.|
|8||Credit Rating Agencies. The IOSCO issued its revised Code of Conduct for CRAs in May, and is developing a work plan to review the adequacy of due diligence typically conducted by investment managers when making investments in structured products. In parallel, the Joint Forum is reviewing the use of ratings by member authorities.||IOSCO will shortly publish a report on Implementation of the IOSCO CRA Code of Conduct. The Implementation Report assesses the degree to which CRAs have adopted codes of conduct that reflect the updated provisions of the IOSCO CRA Code. IOSCO has developed a common inspection module for regulators undertaking inspections of CRAs in their jurisdictions based on the IOSCO Code. IOSCO is developing an approach securities regulators can use to oversee globally active CRAs.|
The Joint Forum has concluded a stocktaking of the use of ratings in regulation.
|9||Strengthening the authorities’ responsiveness to risk.|
The FSF has formed a group of key supervisors to develop protocols needed to establish supervisory colleges by end-2008.
The FSF and IMF are expected to strengthen their cooperation.
|The FSF has developed protocols for establishing supervisory colleges as well as a list of the major global financial institutions to which the colleges should apply. Colleges now exist for most of the large complex financial institutions identified by the FSF, and the remaining ones will be put in place shortly. A review of these arrangements will be undertaken in 2009. To facilitate the coordination of policy development and its focus on priorities, the FSF is supporting joint strategic reviews by standard-setting bodies of their priorities The FSF is revamping its vulnerabilities assessment process.|
The FSF and the IMF clarified the form and content of their cooperation in a joint statement in November 2008,
|10||Central Bank Operations: CGFS has compiled information on the steps taken individually or collectively by central banks to adapt operations, and a first version of report has been submitted. Central banks are continuing to actively investigate the lessons drawn from recent experiences for their operational frameworks, and the CGFS will present a progress report to the FSF in September.||The CGFS has since followed up on its recommendation on the international distribution of liquidity, focusing on two policy options: (i) inter-central bank swap lines; and (ii) the acceptance of cross-border collateral. The CGFS is preparing a review on measures taken by central banks to respond to the crisis, as well as setting up a database to collect information on measures across countries. The CPSS also finalized in December 2008 a report on operational arrangements that central banks may take to provide cross-border liquidity, particularly in emergency situations.|
|11||Dealing with Weak banks: BCBS is working with national authorities to take stock of country practices in crisis resolution. Consultations on establishing a cross-border group for crisis management planning have been initiated. The BCBS and the IADI are working jointly to develop core international principles for effective deposit insurance systems. Also, the IMF and World Bank have started to review national authorities’ arrangements.||The BCBS’ Cross Border Resolution Group has completed a preliminary assessment of legal frameworks and resolution policies and is now working on an examination of individual failures to draw lessons for policy. The IADI Core Principles for Effective Deposit Insurance are being finalized for publication in March or April.|
The FSF sub-group on cross-border crisis management has developed high-level principles for cross-border cooperation on crisis management, to be published in March 2009.