On December 5, the Basel Committee on Banking Supervision (Committee) published separate reports assessing the implementation of the Basel III capital framework in the United States and the European Union. The Committee conducts a Regulatory Consistency Assessment Programme (RCAP) to determine a jurisdiction’s implementation of the Basel III capital framework and to identify any significant deviations from compliance.
The RCAP assessment evaluates a jurisdiction’s regulations across the various components of the risk-based capital standards. The assessments are made on a four-grade scale: 1) compliant; 2) largely compliant; 3) materially non-compliant; and 4) non-compliant. The RCAP evaluations do not consider a jurisdiction’s bank supervision practices, the adequacy of regulatory capital for individual banks or the banking system as a whole.
For the United States, the RCAP assessment concluded that seven of the 13 evaluated components were compliant and four were largely compliant; however, two—the securitization framework and the standardized approach for market risk—were materially non-complaint. For the European Union, the RCAP assessment concluded that eight of the 14 evaluated components were compliant and four were largely compliant; one—the Internal Ratings-based approach for credit risk—was materially non-compliant and one—the counterparty credit risk framework—was found to be non-compliant.
The RCAP assessment reported that both the United States and the European Union were not applying credit valuation adjustments (CVA) in line with the Basel III requirements. The European Union’s counterparty credit risk framework provides an exemption from the Basel III framework’s CVA capital charge for certain derivatives exposures. In the United States, the CVA capital charge has not been incorporated in the new standardized approach, with the result that a number of core banks have not been subject to a separate capital charge for CVA risk for a protracted amount of time.
The Committee’s report on the United States can be found here; the report on the European Union can be found here.