The Basel Committee on Banking Supervision (BCBS) has agreed to remove certain national discretions from the Basel capital framework. The BCBS has agreed to remove the following national discretions from the Basel II capital framework:
- Treatment of past-due loans: footnote 31 of paragraph 76: “There will be a transitional period of three years during which a wider range of collateral may be recognised, subject to national discretion.”
- Definition of retail exposures: the following sentence in paragraph 232: “Supervision may choose to set a minimum number of exposures within a pool for exposures in that pool to be treated as retail.”
- Transitional arrangements for corporate, sovereign, bank and retail exposures: the following sentence in paragraph 264: “During the transition period, the following minimum requirements can be relaxed, subject to discretion of the national supervisor2 and the related transitional arrangements in that paragraph.
- Rating structure standards for wholesale exposures: the following sentence in paragraph 404: “supervisors may require banks, which lend to borrowers of diverse credit quality, to have a greater number of borrower grades”;
- Internal and external audit: the following sentence in paragraph 443: “Some national supervisors may also require an external audit of the bank’s rating assignment process and estimation of loss characteristics”.
- Re-aging: the following sentence in paragraph 458: “Some supervisors may choose to establish more specific requirements on re-aging for banks in their jurisdiction”.
In addition, the BCBS noted that the national discretion related to the internal ratings-based approach treatment of equity exposures will expire in 2016, as the discretion was to apply for a maximum of 10 years from the publication of the Basel II framework.
The BCBS also issued a response to a frequently asked question on funding valuation adjustment. The FAQ notes that a bank should continue to derecognise its debit valuation adjustment in full, whether or not it has adopted a funding valuation-type adjustment.