OREANDA-NEWS. The Basel Committee's regular assessments of how its members are implementing its rules are resulting in greater consistency, says Fitch Ratings. National authorities often try to address issues before the formal Basel reviews begin.

The Committee's Regulatory Consistency Assessment Programme (RCAP) is intended to ensure "full, timely and consistent implementation" and to "maintain market confidence in regulatory ratios". Implementation had often been uneven in the past, notably in the US, where the Basel II rules only came into effect in 2008, accompanied by prolonged capital floors based on Basel I. Many Basel members have had their own interpretation of the rules, which in some cases differed widely.

The Basel Committee sets minimum standards for banks, but does not have legislative or enforcement powers, which means it is reliant on individual members to implement the rules. The RCAP seeks to address this by identifying and publicising gaps in implementation, encouraging members to update their rules as needed.

For example, RCAPs for Russia and Turkey published in March 2016 showed compliance with the risk-based capital standards and Liquidity Coverage Ratio implementation, which came into effect on 1 January 2015. Both Russia and Turkey took steps ahead of the review to increase compliance with Basel rules.

The Basel Committee found the US "largely compliant" in its December 2014 findings. US authorities issued proposals to increase the overall consistency of US capital regulations with the Basel standards during the RCAP review period. Material deviations were limited to the securitisation framework (arising from the Dodd-Frank prohibition on use of external credit ratings) and the permanent implementation of a rule in the trading book that was only intended to allow time-limited transitional relief.

The EU was deemed "non-compliant" in December 2014 even though 12 of 14 RCAP categories were either "compliant" or "largely compliant". The Committee considered the counterparty credit risk framework non-compliant, as EU banks are permitted to exclude some exposures from the credit valuation adjustment (CVA) risk capital charge (qualifying corporates, pension funds and EU sovereigns). The Basel Committee found this deviation "materially boosts" bank capital ratios. Another issue was the application of an "SME supporting factor" of 0.7619, introduced to neutralise the effect of the Basel III capital conservation buffer on SME lending.

Russia amended its minimum common equity Tier 1 and total capital ratios to align with Basel, to 4.5% and 8% respectively, from 5% and 10%, but the reduction of minimum capital requirements is offset by the implementation of capital buffers. Certain fixed standardised risk-weightings were amended to better align to Basel standards, but the Committee highlighted the lack of risk weight granularity for non-sovereign exposures.

All jurisdictions so far assessed except the EU have been judged compliant or largely compliant for risk-based capital. The EU has not formally announced further actions to improve compliance, but the European Banking Authority has been consulting since November 2015 on additional Pillar 2 capital requirements for banks exposed to material CVA risk. In contrast, the SME supporting factor remains a key facet of the EU's Basel implementation, as agreed by the European Parliament. Legislators support its application to avoid negative repercussions from the new capital standards on SMEs' access to funding and EU economic growth, and to reflect the high dependence of SMEs on bank finance within the EU.