Russia, Mexico laggards in implementing Basel 2 & 3 capital frameworks

MANILA, Philippines - Russia and Mexico are the laggard in implementing majority of the regulations outlined by the Bank of International Settlement (BIS) though its Basel Committee on Banking Supervision (BCBS).

In a report released by the Economic Intelligence Unit (EIU), majority of the G-20 members are adopting BCBS banking rules through the introduction of domestically applicable regulations.

Quoting a BCBS report released early this month, EIU said that Russia failed to carry out fully the regulations for Basel 2, a set of capital accords due to be implemented by end-2006.

Second, Russia is also falling behind in adopting Basel 2.5, a set of standards for measuring banks’ risks in securitization and trading-book positions that were slated to be in place by end-2011.

It is behind in rulemaking on the Basel 3 capital standards that took effect on January 2013.

“Although it implemented new base capital rules a year late, it has yet to issue regulations on counterparty credit risk (the so-called CVA capital charge) and on supplementary capital buffers,” the report read.

Mexico falls short of timely compliance with two of the three Basel rules it was supposed to have adopted. The BCBS evaluation notes that full regulations under Basel 2.5 will be delayed until later in 2014. It also faults the country for delaying introduction of a specific provision – rules on banks’ exposures to central counterparties such as clearinghouses – contained in the Basel 3 capital standards.

Meanwhile, Japan and the UK have not yet implemented Basel 3 capital standards.

Japan has not published even draft rules on several key provisions.

The UK issued proposed regulations but bureaucratic complications have delayed their final adoption.

The progress report notes that the European Union completed the necessary changes for Basel 3 capital standards.

Nevertheless, a handful of countries party to the agreement as EU members have yet to carry out their own domestic reforms. These include Belgium, the Netherlands, Spain and Sweden.

The Basel rulemaking process is at most at its halfway point, the EU said.

In the coming years the participating countries will have to formulate regulations in three areas: (1) tighter rules on significantly important banks (SIBs), (2) standards requiring banks to maintain more of their assets in liquid instruments that can easily be sold, if necessary, and (3) a new leverage ratio that will restrict the size of banks’ balance sheets to multiples of their base capital irrespective of the risk weighting they attach to their diverse assets.