BCBS: Basel III definition of capital - Frequently asked questions
Oct 20, 2011
The Basel Committee on Banking Supervision has received a number of interpretation questions related to the December 2010 publication of the Basel III regulatory frameworks for capital and liquidity and the 13 January 2011 press release on the loss absorbency of capital at the point of non-viability. To help ensure a consistent global implementation of Basel III, the Committee will continue to review frequently asked questions and to periodically publish answers along with any technical elaboration of the rules text and interpretative guidance that may be necessary.
The frequently asked questions (FAQs) published in this document correspond to the definition of capital sections of the Basel III rules text. These FAQs are in addition to the first set of FAQs published in July 2011. The questions and answers are grouped according to the relevant paragraphs of the rules text. FAQs that have been added since the publication of the first version of this document are shaded yellow; the earlier July 2011 FAQs that have been revised are shaded red.
Contents
Paragraphs 52-53 (Criteria for Common Equity Tier 1)
Paragraphs 54-56 (Criteria for Additional Tier 1 capital)
Paragraphs 60-61 (Provisions)
Paragraphs 62-65 (Minority interest and other capital that is issued out of consolidated subsidiaries that is held by third parties)
Paragraphs 67-68 (Goodwill and other intangibles)
Paragraphs 69-70 (Deferred tax assets)
Paragraphs 76-77 (Defined benefit pension fund assets and liabilities)
Paragraphs 79-85 (Investments in the capital of banking financial and insurance entities)
Paragraphs 94-96 (Transitional arrangements)
Press release 13 January 2011 (Loss absorbency at the point of non-viability)
General questions
http://www.bis.org/publ/bcbs204.htm
Thursday, October 20, 2011
Rapid Credit Growth: Boon or Boom-Bust?
Rapid Credit Growth: Boon or Boom-Bust? By Selim Elekdag & Yiqun Wu
IMF Working Paper No. 11/241
October 01, 2011
http://www.imfbookstore.org/IMFORG/WPIEA2011241
Summary: Episodes of rapid credit growth, especially credit booms, tend to end abruptly, typically in the form of financial crises. This paper presents the findings of a comprehensive event study focusing on 99 credit booms. Loose monetary policy stances seem to have contributed to the build-up of credit booms across both advanced and emerging economies. In particular, domestic policy rates were below trend during the pre-peak phase of credit booms and likely fuelled macroeconomic and financial imbalances. For emerging economies, while credit booms are associated with episodes of large capital inflows, international interest rates (a proxy for global liquidity) are virtually flat during these periods. Therefore, although external factors such as global liquidity conditions matter, and possibly increasingly so over time, domestic factors (especially monetary policy) also appear to be important drivers of real credit growth across emerging economies.
Executive Summary
This paper is motivated by rapid credit growth across many emerging economies, particularly those in Asia. It presents the results of a comprehensive event study which identifies 99 credit booms, of which 39 and 60 originated in advanced and emerging economies, respectively. Episodes of excessive credit growth—credit booms—lead to growing financial imbalances, and tend to end abruptly, often in the form of financial crises. In particular, relative to booms in other emerging economies, credit booms in emerging Asia were associated with a higher incidence of crises historically.
Three other main conclusions include the following:
IMF Working Paper No. 11/241
October 01, 2011
http://www.imfbookstore.org/IMFORG/WPIEA2011241
Summary: Episodes of rapid credit growth, especially credit booms, tend to end abruptly, typically in the form of financial crises. This paper presents the findings of a comprehensive event study focusing on 99 credit booms. Loose monetary policy stances seem to have contributed to the build-up of credit booms across both advanced and emerging economies. In particular, domestic policy rates were below trend during the pre-peak phase of credit booms and likely fuelled macroeconomic and financial imbalances. For emerging economies, while credit booms are associated with episodes of large capital inflows, international interest rates (a proxy for global liquidity) are virtually flat during these periods. Therefore, although external factors such as global liquidity conditions matter, and possibly increasingly so over time, domestic factors (especially monetary policy) also appear to be important drivers of real credit growth across emerging economies.
Executive Summary
This paper is motivated by rapid credit growth across many emerging economies, particularly those in Asia. It presents the results of a comprehensive event study which identifies 99 credit booms, of which 39 and 60 originated in advanced and emerging economies, respectively. Episodes of excessive credit growth—credit booms—lead to growing financial imbalances, and tend to end abruptly, often in the form of financial crises. In particular, relative to booms in other emerging economies, credit booms in emerging Asia were associated with a higher incidence of crises historically.
Three other main conclusions include the following:
- First, as credit booms build, they are jointly associated with deteriorating bank and corporate balance sheet soundness, and symptoms of overheating including: large capital inflows (including less stable bank flows), widening current account deficits, buoyant asset prices, and strong domestic demand.
- Second, while credit booms are associated with episodes of large capital inflows, international interest rates (a proxy for global liquidity), are virtually flat during these periods, which suggests the important role of domestic factors in driving credit growth across emerging economies. This may reflect, in part, that capital inflows are being channeled into other asset classes including real estate, equity, and corporate bonds, for example.
- Third, loose macroeconomic policy stances seem to have contributed to the build-up of credit booms. In particular, this seems to be the case for monetary policy across both advanced and emerging economies. For emerging economies, while international interest rates were essentially flat, domestic policy rates were below trend during the pre-peak phase of credit booms. Therefore, although external factors such as global liquidity conditions matter, and possibly increasingly so over time, domestic factors (especially monetary policy) also appear to be important drivers of real credit growth across emerging economies including those in Asia.
Chellaney: Hydro-control turning China into dreaded hydra?
THE WATER HEGEMON
Hydro-control turning China into dreaded hydra? By Brahma Chellaney
Bangkok Post, Oct 18, 2011 at 12:00 AM
With Beijing controlling the sources of Asia's most important rivers, water has increasingly become a new political divide in China's relations with neighbours like India, Russia, Kazakhstan, Nepal and the Mekong River countries.
http://www.bangkokpost.com/opinion/opinion/261849/hydro-control-turning-china-into-dreaded-hydra
International discussion about China's rise has focused on its increasing trade muscle, growing maritime ambitions, and expanding capacity to project military power. One critical issue, however, usually escapes attention: China's rise as a hydro-hegemon with no modern historical parallel.
The Mekong River, whose water level last March dropped to only 33 centimetres, the lowest in 50 years. People living downriver in Thailand, Laos and Cambodia attributed the fall in water level to newly constructed dams in China.
No other country has ever managed to assume such unchallenged riparian pre-eminence on a continent by controlling the headwaters of multiple international rivers and manipulating their cross-border flows. China, the world's biggest dam builder _ with slightly more than half of the approximately 50,000 large dams on the planet _ is rapidly accumulating leverage against its neighbours by undertaking massive hydro-engineering projects on transnational rivers.
Asia's water map fundamentally changed after the 1949 Communist victory in China. Most of Asia's important international rivers originate in territories that were forcibly annexed to the People's Republic of China. The Tibetan Plateau, for example, is the world's largest freshwater repository and the source of Asia's greatest rivers, including those that are the lifeblood for mainland China and South and Southeast Asia. Other such Chinese territories contain the headwaters of rivers like the Irtysh, Illy and Amur, which flow to Russia and Central Asia.
This makes China the source of cross-border water flows to the largest number of countries in the world. Yet China rejects the very notion of water sharing or institutionalised cooperation with downriver countries. Whereas riparian neighbours in Southeast and South Asia are bound by water pacts that they have negotiated between themselves, China does not have a single water treaty with any co-riparian country. Indeed, having its cake and eating it, China is a dialogue partner but not a member of the Mekong River Commission, underscoring its intent not to abide by the Mekong basin community's rules or take on any legal obligations.
Worse, while promoting multilateralism on the world stage, China has given the cold shoulder to multilateral cooperation among river-basin states. The lower-Mekong countries, for example, view China's strategy as an attempt to "divide and conquer". Although China publicly favours bilateral initiatives over multilateral institutions in addressing water issues, it has not shown any real enthusiasm for meaningful bilateral action. As a result, water has increasingly become a new political divide in the country's relations with neighbours like India, Russia, Kazakhstan, and Nepal.
China deflects attention from its refusal to share water, or to enter into institutionalised cooperation to manage common rivers sustainably, by flaunting the accords that it has signed on sharing flow statistics with riparian neighbours. These are not agreements to cooperate on shared resources, but rather commercial accords to sell hydrological data that other upstream countries provide free to downriver states.
In fact, by shifting its frenzied dam building from internal rivers to international rivers, China is now locked in water disputes with almost all co-riparian states. Those disputes are bound to worsen, given China's new focus on erecting mega-dams, best symbolised by its latest addition on the Mekong _ the 4,200-megawatt Xiaowan Dam, which dwarfs Paris's Eiffel Tower in height _ and a 38,000-megawatt dam planned on the Brahmaputra at Metog, close to the disputed border with India. The Metog Dam will be twice as large as the 18,300-megawatt Three Gorges Dam, currently the world's largest, construction of which uprooted at least 1.7 million Chinese.
In addition, China has identified another mega-dam site on the Brahmaputra at Daduqia, which, like Metog, is to harness the force of a nearly 3,000-metre drop in the river's height as it takes a sharp southerly turn from the Himalayan range into India, forming the world's longest and steepest canyon. The Brahmaputra Canyon _ twice as deep as the Grand Canyon in the United States _ holds Asia's greatest untapped water reserves.
The countries likely to bear the brunt of such massive diversion of waters are those located farthest downstream on rivers like the Brahmaputra and Mekong _ Bangladesh, whose very future is threatened by climate and environmental change, and Vietnam, a rice bowl of Asia. China's water appropriations from the Illy River threaten to turn Kazakhstan's Lake Balkhash into another Aral Sea, which has shrunk to less than half its original size.
In addition, China has planned the "Great Western Route", the proposed third leg of the Great South-North Water Diversion Project _ the most ambitious inter-river and inter-basin transfer programme ever conceived _ whose first two legs, involving internal rivers in China's ethnic Han heartland, are scheduled to be completed within three years.
The Great Western Route, centred on the Tibetan Plateau, is designed to divert waters, including from international rivers, to the Yellow River, the main river of water-stressed northern China, which also originates in Tibet.
With its industry now dominating the global hydropower-equipment market, China has also emerged as the largest dam builder overseas. From Pakistani-held Kashmir to Burma's troubled Kachin and Shan states, China has widened its dam building to disputed or insurgency-torn areas, despite local backlashes.
For example, units of the People's Liberation Army are engaged in dam and other strategic projects in the restive, Shia-majority region of Gilgit-Baltistan in Pakistan-held Kashmir. And China's dam building inside Burma to generate power for export to Chinese provinces has contributed to renewed bloody fighting recently, ending a 17-year ceasefire between the Kachin Independence Army and the Burmese government.
As with its territorial and maritime disputes with India, Vietnam, Japan and others, China is seeking to disrupt the status quo on international river flows. Persuading it to halt further unilateral appropriation of shared waters has thus become pivotal to Asian peace and stability. Otherwise, China is likely to emerge as the master of Asia's water taps, thereby acquiring tremendous leverage over its neighbours' behaviour.
Brahma Chellaney is Professor of Strategic Studies at the Centre for Policy Research and the author of "Water: Asia's New Battleground." Project Syndicate, 2011.
Hydro-control turning China into dreaded hydra? By Brahma Chellaney
Bangkok Post, Oct 18, 2011 at 12:00 AM
With Beijing controlling the sources of Asia's most important rivers, water has increasingly become a new political divide in China's relations with neighbours like India, Russia, Kazakhstan, Nepal and the Mekong River countries.
http://www.bangkokpost.com/opinion/opinion/261849/hydro-control-turning-china-into-dreaded-hydra
International discussion about China's rise has focused on its increasing trade muscle, growing maritime ambitions, and expanding capacity to project military power. One critical issue, however, usually escapes attention: China's rise as a hydro-hegemon with no modern historical parallel.
The Mekong River, whose water level last March dropped to only 33 centimetres, the lowest in 50 years. People living downriver in Thailand, Laos and Cambodia attributed the fall in water level to newly constructed dams in China.
No other country has ever managed to assume such unchallenged riparian pre-eminence on a continent by controlling the headwaters of multiple international rivers and manipulating their cross-border flows. China, the world's biggest dam builder _ with slightly more than half of the approximately 50,000 large dams on the planet _ is rapidly accumulating leverage against its neighbours by undertaking massive hydro-engineering projects on transnational rivers.
Asia's water map fundamentally changed after the 1949 Communist victory in China. Most of Asia's important international rivers originate in territories that were forcibly annexed to the People's Republic of China. The Tibetan Plateau, for example, is the world's largest freshwater repository and the source of Asia's greatest rivers, including those that are the lifeblood for mainland China and South and Southeast Asia. Other such Chinese territories contain the headwaters of rivers like the Irtysh, Illy and Amur, which flow to Russia and Central Asia.
This makes China the source of cross-border water flows to the largest number of countries in the world. Yet China rejects the very notion of water sharing or institutionalised cooperation with downriver countries. Whereas riparian neighbours in Southeast and South Asia are bound by water pacts that they have negotiated between themselves, China does not have a single water treaty with any co-riparian country. Indeed, having its cake and eating it, China is a dialogue partner but not a member of the Mekong River Commission, underscoring its intent not to abide by the Mekong basin community's rules or take on any legal obligations.
Worse, while promoting multilateralism on the world stage, China has given the cold shoulder to multilateral cooperation among river-basin states. The lower-Mekong countries, for example, view China's strategy as an attempt to "divide and conquer". Although China publicly favours bilateral initiatives over multilateral institutions in addressing water issues, it has not shown any real enthusiasm for meaningful bilateral action. As a result, water has increasingly become a new political divide in the country's relations with neighbours like India, Russia, Kazakhstan, and Nepal.
China deflects attention from its refusal to share water, or to enter into institutionalised cooperation to manage common rivers sustainably, by flaunting the accords that it has signed on sharing flow statistics with riparian neighbours. These are not agreements to cooperate on shared resources, but rather commercial accords to sell hydrological data that other upstream countries provide free to downriver states.
In fact, by shifting its frenzied dam building from internal rivers to international rivers, China is now locked in water disputes with almost all co-riparian states. Those disputes are bound to worsen, given China's new focus on erecting mega-dams, best symbolised by its latest addition on the Mekong _ the 4,200-megawatt Xiaowan Dam, which dwarfs Paris's Eiffel Tower in height _ and a 38,000-megawatt dam planned on the Brahmaputra at Metog, close to the disputed border with India. The Metog Dam will be twice as large as the 18,300-megawatt Three Gorges Dam, currently the world's largest, construction of which uprooted at least 1.7 million Chinese.
In addition, China has identified another mega-dam site on the Brahmaputra at Daduqia, which, like Metog, is to harness the force of a nearly 3,000-metre drop in the river's height as it takes a sharp southerly turn from the Himalayan range into India, forming the world's longest and steepest canyon. The Brahmaputra Canyon _ twice as deep as the Grand Canyon in the United States _ holds Asia's greatest untapped water reserves.
The countries likely to bear the brunt of such massive diversion of waters are those located farthest downstream on rivers like the Brahmaputra and Mekong _ Bangladesh, whose very future is threatened by climate and environmental change, and Vietnam, a rice bowl of Asia. China's water appropriations from the Illy River threaten to turn Kazakhstan's Lake Balkhash into another Aral Sea, which has shrunk to less than half its original size.
In addition, China has planned the "Great Western Route", the proposed third leg of the Great South-North Water Diversion Project _ the most ambitious inter-river and inter-basin transfer programme ever conceived _ whose first two legs, involving internal rivers in China's ethnic Han heartland, are scheduled to be completed within three years.
The Great Western Route, centred on the Tibetan Plateau, is designed to divert waters, including from international rivers, to the Yellow River, the main river of water-stressed northern China, which also originates in Tibet.
With its industry now dominating the global hydropower-equipment market, China has also emerged as the largest dam builder overseas. From Pakistani-held Kashmir to Burma's troubled Kachin and Shan states, China has widened its dam building to disputed or insurgency-torn areas, despite local backlashes.
For example, units of the People's Liberation Army are engaged in dam and other strategic projects in the restive, Shia-majority region of Gilgit-Baltistan in Pakistan-held Kashmir. And China's dam building inside Burma to generate power for export to Chinese provinces has contributed to renewed bloody fighting recently, ending a 17-year ceasefire between the Kachin Independence Army and the Burmese government.
As with its territorial and maritime disputes with India, Vietnam, Japan and others, China is seeking to disrupt the status quo on international river flows. Persuading it to halt further unilateral appropriation of shared waters has thus become pivotal to Asian peace and stability. Otherwise, China is likely to emerge as the master of Asia's water taps, thereby acquiring tremendous leverage over its neighbours' behaviour.
Brahma Chellaney is Professor of Strategic Studies at the Centre for Policy Research and the author of "Water: Asia's New Battleground." Project Syndicate, 2011.
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