By Bob Takavingofa
2015
In pursuit of an optimal trade‐off between required regulatory capital to support assumed risks by banking institutions and their continued ability to support the levers of the economy through funding economically justifiable projects the BCBS1 recalibrates capital standards from time to time. This ensures that capital standards are responsive to the dynamic universe of forms and nature of risks facing banking institutions. In order to make their banking institutions more resilient to endogenous and exogenous shocks, regulators in the MEFMI region are always seeking to implement efficient regulatory standards that promote this objective. The pursuance of this goal has led regulators in the region implementing the BCBS capital standards.
The MEFMI region is, however, at various stages of implementing the Basel II capital standards and economic development, wherein most countries are focusing on improving the living standards and economic prosperity of their populations. This paper assesses the impact of proposed revisions to the Basel II credit risk standardised approaches that were published in March 2015 for comments. The paper concludes that the latest proposals simplifies the implementation of capital standards for banking institutions that have simple banking models that are supported by non‐complex products. With simplicity, however, comes scope for arbitrage of the framework and supervisors and regulators in the MEFMI region must maintain the current thrust of sharpening their supervisory and regulatory tools and methodology to ensure they are able to address this.