[PDF] Ireland: Financial Sector Assessment Program-Technical Note on

What is the Basel III framework?

• The Basel III framework is a central element of the Basel Committee’s response to the global financial crisis. It addresses a number of shortcomings in the pre-crisis regulatory framework and provides a foundation for a resilient banking system that will help avoid the build-up of systemic vulnerabilities.

What is a capital charge in Basel III?

• The initial phase of Basel III reforms introduced a capital charge for potential mark-to-market losses of derivative instruments as a result of the deterioration in the creditworthiness of a counterparty.

Does Basel III introduce a leverage ratio buffer for G-SIBs?

• To maintain the relative incentives provided by both capital constraints, the finalised Basel III reforms introduce a leverage ratio buffer for G-SIBs. Such an approach is consistent with the risk-weighted G-SIB buffer, which seeks to mitigate the externalities created by G-SIBs.

Can a bank set capital requirements equal to one?

• At national discretion, supervisors can elect to set ILM equal to one for all banks in their jurisdiction. This means that capital requirements in such cases would be determined solely by the BIC. That is, capital requirements would not be related to a bank’s historical operational risk losses.