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Developing economies can strengthen their financial systems by implementing the main elements of global regulatory reform. But to build an effective prudential framework, they may need to adapt international standards taking into account the sophistication and size of their financial institutions, the relevance of different financial operations in their market, the granularity of information available and the capacity of their supervisors. Under a proportionate application of the Basel standards, smaller institutions with less complex business models would be subject to a simpler regulatory framework that enhances the resilience of the financial sector without generating disproportionate compliance costs. This paper provides guidance on how non-Basel Committee member countries could incorporate banks’ capital and liquidity standards into their framework. It builds on the experience gained by the authors in the course of their work in providing technical assistance on—and assessing compliance with—international standards in banking supervision.

Banks and Banking --- Finance: General --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- General Financial Markets: Government Policy and Regulation --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Financial services law & regulation --- Banking --- Liquidity risk --- Liquidity requirements --- Basel III --- Basel Core Principles --- Banks and banking --- State supervision --- Financial risk management

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This Technical Note discusses the findings and recommendations in the Financial Sector Assessment Program for the Netherlands on banking supervision. The financial resilience of banks in the Netherlands has been strengthened in recent years, and banks are benefiting from continuing economic recovery. Broad-based economic recovery is helping stimulate demand for credit, although credit growth remains slow and unemployment continues to fall. Housing markets have started to recover since 2013 with prices and transaction volumes picking up. There has been an improvement in the financial position of Dutch banks. Cost efficiency has improved, and profitability has recovered. The banks migration to the new Basel III standards is also well underway for capital adequacy and liquidity.

Banks and banking --- Monetary policy --- Banks and Banking --- Industries: Financial Services --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Financial Institutions and Services: Government Policy and Regulation --- Banking --- Finance --- Financial services law & regulation --- Operational risk --- Loans --- Liquidity requirements --- Financial institutions --- Financial regulation and supervision --- Financial services --- Financial risk management --- State supervision --- Financial services industry --- Netherlands, The

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This paper studies the impact of bank regulation and taxation in a dynamic model with banks exposed to credit and liquidity risk. We find an inverted U-shaped relationship between capital requirements and bank lending, efficiency, and welfare, with their benefits turning into costs beyond a certain requirement threshold. By contrast, liquidity requirements reduce lending, efficiency and welfare significantly. The costs of high capital and liquidity requirements represent a lower bound on the benefits of these regulations in abating systemic risks. On taxation, corporate income taxes generate higher government revenues and entail lower efficiency and welfare costs than taxes on non-deposit liabilities. .

Banks and banking --- Bank capital --- Taxation --- Capital --- Agricultural banks --- Banking --- Banking industry --- Commercial banks --- Depository institutions --- Finance --- Financial institutions --- Money --- State supervision --- Econometric models. --- Banks and Banking --- Industries: Financial Services --- Investments: Stocks --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Bankruptcy --- Liquidation --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Financial services law & regulation --- Investment & securities --- Liquidity requirements --- Capital adequacy requirements --- Loans --- Bank regulation --- Financial regulation and supervision --- Stocks --- Asset requirements --- United States

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Financial sector reforms are being considered to address the risks posed by large and complex financial institutions (LCFIs). The vast majority of global finance is intermediated by a handful of these institutions with growing interconnections within and across borders. Common trends that contributed to the recent global crisis included sharp increases in leverage, significant reliance on short-term wholesale funding, growth of off-balance-sheet activities, maturity mismatches, and increased share of revenues from complex products and trading activities. The key objective of the financial sector reforms is to promote a less leveraged, less risky (or better cushioned), and thus a more resilient financial system that supports strong and sustainable economic growth. The recent proposals of the Basel Committee on Banking Supervision (BCBS) on capital standards represent a substantial improvement in the quantity and quality of capital in comparison with the pre-crisis situation. The analysis of this paper suggests that, subject to usual caveats associated with limited data disclosures and availability, phase-in arrangements will allow most banks to move to these higher standards through earnings retention, assuming a modest economic and earnings outlook. It also suggests that should banks generate strong earnings in the coming years, and distribute lower dividends, they could rebuild common equity capital ratios faster than required under the current phase-in periods. The analysis of the paper also suggests that the new capital standards will have a significant impact on investment-banking-type activities, including through tighter requirements for trading book exposures. Investment banking activities will also be affected by a host of other regulatory initiatives, including the new accounting rules and higher standards for securitization, derivatives, and trading businesses, as well as measures to restrain certain activities. Yet, LCFIs with an investment banking focus have flexible business models and can adjust their strategies easily to mitigate the effects of the regulatory reforms, notwithstanding a multitude of regulations affecting their activities. The ultimate effect of the reforms on business models remains to be seen until the regulations take their final shape.

Financial institutions --- Banks and banking --- Bank capital --- Bank liquidity --- Liquidity (Economics) --- Capital --- State supervision --- E-books --- Banks and Banking --- Financial Crises --- Financial Institutions and Services: Government Policy and Regulation --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Investment Banking --- Venture Capital --- Brokerage --- Ratings and Ratings Agencies --- Banking --- Financial services law & regulation --- Liquidity requirements --- Investment banking --- Commercial banks --- Capital adequacy requirements --- Financial regulation and supervision --- Financial services --- Countercyclical capital buffers --- Asset requirements --- United States

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Banks may be unable to refinance short-term liabilities in case of solvency concerns. To manage this risk, banks can accumulate a buffer of liquid assets, or strengthen transparency to communicate solvency. While a liquidity buffer provides complete insurance against small shocks, transparency covers also large shocks but imperfectly. Due to leverage, an unregulated bank may choose insufficient liquidity buffers and transparency. The regulatory response is constained: while liquidity buffers can be imposed, transparency is not verifiable. Moreover, liquidity requirements can compromise banks' transparency choices, and increase refinancing risk. To be effective, liquidity requirements should be complemented by measures that increase bank incentives to adopt transparency.

Bank liquidity --- Risk management --- Insurance --- Management --- Liquidity (Economics) --- Econometric models. --- Econometric models --- E-books --- Banks and Banking --- Finance: General --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Bankruptcy --- Liquidation --- Financial services law & regulation --- Banking --- Finance --- Liquidity requirements --- Liquidity risk --- Hedging --- Bank solvency --- Banks and banking --- State supervision --- Financial risk management