risk management presentation july 2 2012

7/28/2019 Risk Management Presentation July 2 2012

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International Association of Risk and ComplianceProfessionals (IARCP)

1200 G Street NW Suite 800 Washington, DC 20005-6705 USATel: 202-449-9750www.risk-compliance-association.com

Top 10 risk and compliance management related news storiesand world events that (for better or for worse) shaped the week's

agenda, and what is next

George LekatisPresident of the IARCP

Dear Member,

To err is human; to blame it on somebody else showsmanagement potential.

Just kidding.

In Basel iii, to err is human, to blame it on something else and to amendthe Basel iii accord to close the next gap, shows that our kids will try hardto comply with the next version of BaselBasel x. (No kidding)

Number 1: We have the Basel 3 Pillar 3 templates available!Acommon template is established that banks must use to report thebreakdown of their regulatory capital when the transition period for thephasing-in of deductions ends on 1 January 2018.

A new 3 step approachfor banks to follow is established to ensure that theBasel II I requirement to provide a full reconciliation of all regulatorycapital elements back to the published financial statements is met in aconsistent manner.

A common template is established that banks must use to meet the BaselI I I requirement to provide a description of the main features of regulatorycapital instruments issued.

International Association of Risk and Compliance Professionals (IARCP)www.risk-compliance-association.com
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Banks which disclose ratios involving components of regulatory capital(egEquity Tier1, Core Tier 1 orTangible Common Equity ratios)must accompany such disclosures with a comprehensive explanation ofhow these ratios are calculated.

Banks are required to make available on their websites the full terms andconditionsof all instruments included in regulatory capital.

Number 7: Singapore is developing a Solvency II flavorfor the insurancesector. It is a very clever and very interesting approach that combinesBasel iii and Solvency ii.

Singapore seeks to ensure a level playing field across the financial sectorsby having a consistent regulatory and supervisory framework for allregulated financial institutions. The Tier 1 and Tier 2 capital componentsare largely aligned between the existing framework for insurers and thecapital adequacy framework for banks.

Singapore wants to incorporate the same Basel II I features(i.e. equityconversion or write-down on breach of regulatory capital requirements) asconditions for a capital instrument to be approved as a Tier 1 resource inInsurance.

We also have a very interesting definition: Operational risk refers to the

risk of loss arising from complex operations, inadequate internal controls,processes and information systems, organisation changes, fraud orhuman errors, (or unforeseen catastrophes including terrorist attacks).

I enjoy the terminology. In Solvency I I we have the Solvency CapitalRequirement and the Minimum Capital Requirement. I n Singapore wehave the Prescribed Capital Requirement and the Minimum CapitalRequirement. Not exactly the same

Number 2: In the public sector we have an interesting risk management

project - DARPA develops technologies for aiding disaster relief.

It is a very interesting and very different area of risk management.

Welcome to the Top 10 list.

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Composition of capital disclosure requirements - Rulestext, June 2012

The Basel Committee on Banking Supervision haspublished a set of disclosure requirements on thecomposition of banks' capital.

DARPA Develops technologies for aiding disaster reliefNew sea and air delivery systems to enable directsupport to disaster zones from offshore container

ships

EIOPA Published Guidelines onComplaints Handling

Insurers should put in place a complaintsmanagement policy,which is endorsed by their senior managementInsurers should have a complaints management function which enablescomplaints to be investigated fairly and possible conflicts of interest to beidentified and mitigated



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Interview with Speech by IFRS Foundation ChairmanMichel Prada at IFRS Foundation Conference in Frankfurt

27 June 2012

An update on recent and future developments at the IFRSFoundation, six months after Michael had the honour ofbeing elected Chairman of the Foundation Trustees

FASB Publishes Proposal for Disclosing

Liquidity and Interest Rate Risk

The Financial Accounting Standards Board (FASB) issued for publiccomment a proposed Accounting Standards Update (ASU) intended toimprove financial reporting about certain risks inherent in financialinstruments and how they contribute to the reporting organizationsbroader risks.

Speech byThomas M. SelmanExecutive Vice President, Regulatory PolicyIRI Government, Legal and Regulatory Conference

Washington, DCMonday, June 25, 2012



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MAS Consults on Proposed Review ofRisk-based Capital Framework forInsurance Business

The Monetary Authority of Singapore(MAS) released a consultation paper onthe review of the Risk-Based Capital(RBC) framework forinsurance business.

EIOPAEnhancing the European Marketfor Occupational Pension Provision

Joint Statement from the United States andJapan Regarding a Framework forIntergovernmental Cooperation to Facilitatethe Implementation of FATCA and Improve International TaxCompliance

Is globalisation great?Stephen CecchettiEconomic Adviser at the Bank for I nternationalSettlements (BIS), and Head of its Monetary andEconomic Department

Remarks prepared for the 11th BIS AnnualConference, Lucerne, Switzerland, 2122 June 2012



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NUMBER 1

Composition of capital disclosure requirements - Rules textJune 2012

The Basel Committee on BankingSupervision has published a set ofdisclosure requirements on thecomposition of banks' capital.

During the financial crisis, marketparticipants and supervisors werehampered in their efforts to undertakedetailed assessmentsof banks' capitalpositions and make cross-jurisdictional

comparisons.

The source of this difficulty wasinsufficiently detailed disclosure bybanks and a lack of consistency inreporting between banks and across

jurisdictions.

This lack of claritymay have contributedto uncertainty during the financial crisis.

The disclosure requirements aim to improve market discipline throughenhancing both transparency and comparability.

Composition of capital disclosure requirementsIntroduction

During the financial crisis, many market participants and supervisorsattempted to undertake detailed assessments of the capital positions ofbanks and comparisons of their capital positions on a cross jurisdictional

basis.

The level of detail of the disclosure and the lack of consistency in the waythat it was reported typically made this task difficult and often made itimpossible to do with any accuracy.



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It is often suggested that lack of clarity on the quality of capitalcontributed to uncertainty during the financial crisis.

Furthermore, the interventions carried out by the authorities may havebeen more effective if capital positions of the banks were moretransparent.

To ensure that banks back their risk exposures with a high quality capitalbase, Basel II I introduced a set of detailed requirements to raise thequality and consistency of capital in the banking sector.

In addition, Basel II I established certain high level disclosurerequirementsto improve transparency of regulatory capital and enhancemarket discipline and noted that more detailed Pillar 3 disclosure

requirementswould be forthcoming.

This document sets out these detailed requirements.

To enable market participants to compare the capital adequacy of banksacross jurisdictions it is essential that banks disclose the full list ofregulatory capital items and regulatory adjustments.

In addition, to improve consistencyand ease of use of disclosures relatingto the composition of regulatory capital, and to mitigate the risk of

inconsistent formats undermining the objective of enhanced disclosure,the Basel Committee has agreed that internationally-active banks acrossBasel member jurisdictions will be required to publish their capitalpositions according to common templates.

The requirements are set out in the following 5 sections:

Section 1: Post 1 January 2018 disclosure template

A common template is established that banks must use to report thebreakdown of their regulatory capital when the transition period for thephasing-in of deductions ends on 1 January 2018.



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It is designed to meet the Basel I I I requirement to disclose all regulatoryadjustments, including amounts falling below thresholds for deduction,and thus enhance consistency and comparability in the disclosure of theelements of capital between banks and across jurisdictions.

This template may be used in advance of 1 January 2018 in certaincircumstances, which are set out in Section 1.

Section 2: reconciliation requirements

A 3 step approach for banks to follow is established to ensure that theBasel II I requirement to provide a full reconciliation of all regulatorycapital elements back to the published financial statements is met in aconsistent manner.

This approach is not based on a common template because the startingpoint for reconciliation, the banks reported balance sheet, will varybetween jurisdictions due to the application of different accountingstandards.

Section 3: main features template

A common template is established that banks must use to meet the BaselI I I requirement to provide a descriptionof the main features of regulatory

capital instruments issued.

Section 4: other disclosure requirements

This section sets out what banks must do to meet the Basel II Irequirement to provide the full terms and conditions of regulatory capitalinstruments on their websites and the requirement to report thecalculation of any ratios involving components of regulatory capital.

Section 5: template during the transitional period

This section requires banks to use amodified version of the post 1January 2018 template in Section 1 during the transitional phase.



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This template is established to meet the Basel I I I requirement for banksto disclose the components of capital that are benefiting from thetransitional arrangements.

Implementation date and frequency of reporting

National authorities will give effect to the disclosure requirements set outin this document by no later than 30 June 2013.

Banks will be required to comply with the disclosure requirements fromthe date of publication of their first set of financial statements relating to abalance sheet date on or after 30 June 2013 (with the exception of the Post1 January 2018 template set out in Section 1).

Furthermore, except as required in paragraph 7, banks must publish thisdisclosure with the same frequency as, and concurrent with, thepublication of their financial statements, irrespective of whether thefinancial statements are audited (ie disclosure will typically be quarterlyor half yearly).

In the case of the main features template (Section 3) and provision of thefull terms and conditions of capital instruments (Section 4), banks arerequired toupdate these disclosures whenever a new capital instrument isissuedand included in capital and whenever there is a redemption,

conversion/ write-down or other material change in the nature of anexisting capital instrument.

Under Pillar 3, large banks are required to make certain minimumdisclosureswith respect to certain defined key capital ratios and elementson a quarterly basis, regardless of the frequency of financial statementpublication.

The disclosure of key capital ratios/elements for these banks willcontinue to be required under Basel I I I.

Banksdisclosures required by this document must either be included inbankspublished financial statements or, at a minimum, these statements



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must provide adirect link to the completed disclosure on their websites oron publicly available regulatory reports.

Banks must alsomake available on their websites, or through publiclyavailable regulatory reports, an archive (for a suitable retention perioddetermined by the relevant national authority) of all templates relating toprior reporting periods.

Irrespective of the location of the disclosure (published financial reports,bank websites or publicly available regulatory reports), all disclosuresmust be in the format required by this document.

Section 1: Post 1 January 2018 disclosure template

The common template that the Basel Committee has developed is set outin Annex 1, along with an explanation of its design.

The template is designed to capture the capital positions of banks afterthe transition period for the phasing-in of deductions ends on 1 January2018 and must be used by banks for reporting periods on or after this date.

If a jurisdiction permits or requires its banks to apply the full Basel I I Ideductions in advance of 1 January 2018 (ie does not phase-in thedeductions or accelerates the phase-in period of deductions), it can permitor require its banks to use the template in Annex 1 as an alternativeto thetransitional template described in Section 5 from the date of application ofat least the full Basel I I I deductions.

In such cases the relevant banks must clearly disclose that they are usingthis template because they are fully applying the Basel I I I deductions.

Section 2: Reconciliation requirements

This section sets out a common approach that banks must follow tocomply with the requirement of paragraph 91 of the Basel I I I rules text,which states that banks should disclose a full reconciliation of allregulatory capital elements back to the balance sheet in the auditedfinancial statements.



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This requirement aims to address the problem that at present there is adisconnect in many banksdisclosure between the numbers used for thecalculation of regulatory capital and the numbers used in the publishedfinancial statements.

Banks are required to take a 3 step approach to show the link betweentheir balance sheet in their published financial statements and thenumbers that are used in the composition of capital disclosure templateset out in Section 1.

The 3 steps require banks to:

Step 1: Disclose the reported balance sheet under the regulatory scope ofconsolidation.

Step 2: Expand the lines of the balance sheet under the regulatory scopeof consolidation to display all of the components that are used in thecomposition of capital disclosure template.

Step 3: Map each of the components that are disclosed in Step 2 to thecomposition of capital disclosure template set out in Section 1.

The 3 step approach outlined below is designed to offer the followingbenefits:

The level of disclosure is proportionate, varying with the complexity of thebalance sheet of the reporting bank (ie banks are not subject to a fixedtemplate that is designed to fit the most complex banks.

A bank can skip a step if there is no further information added by thatstep).

Market participants and supervisors can trace the origin of the elements

of the regulatory capital back to their exact location on the balance sheetunder the regulatory scope of consolidation.

The approach is flexible enough to be used under any accountingstandard: firms are required to map all the components of the regulatory



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capital disclosure templates back to the balance sheet under theregulatory scope of consolidation, regardless of whether the accountingstandards require the source to be reported on the balance sheet.

Step 1: Disclose the reported balance sheet under the regulatoryscope of consolidation

The scope of consolidation for accounting purposes and for regulatorypurposes are often different.

This factor often explains much of the difference between the numbersused in the calculation of regulatory capital and the numbers used in abanks published financial statements.

Therefore, a key element in any reconciliation involves disclosing how thebalance sheet in the published financial statements changes when theregulatory scope of consolidation is applied.

Step 1 is illustrated in Annex 2.

If the scope ofregulatory consolidation and accounting consolidation isidentical for a particular banking group, it would not need to undertakeStep 1.

The banking group could simply state that there is no difference betweenthe regulatory consolidation and the accounting consolidation and moveto Step 2.

In addition to Step 1, banks are required to disclose the list the legalentitiesthat are included within accounting scope of consolidation butexcluded from the regulatory scope of consolidation.

This will better enable supervisors and market participants to investigate

the risks posed by unconsolidated subsidiaries.



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Similarly, banks are required to list the legal entities included in theregulatory consolidation that are not included in the accounting scope ofconsolidation.

Finally, if some entities are included in both the regulatory scope ofconsolidation and accounting scope of consolidation, but the method ofconsolidation differsbetween these two scopes, banks are required to listthese legal entities separately and explain the differences in theconsolidation methods.

Regarding each legal entity that is required to be disclosed by thisparagraph, banks must also disclose its total balance sheet assets andtotal balance sheet equity (as stated on the accounting balance sheet ofthe legal entity) and a description of the principle activities of the entity.

Step 2: Expand the lines of the regulatory balance sheet todisplay all of the components used in the definition of capitaldisclosure template

Many of the elements used in the calculation of regulatory capital cannotbe readily identified from the face of the balance sheet.

Therefore, banks should expand the rowsof the regulatory-scope balancesheet such that all of the components used in the composition of capitaldisclosure template (described in Section 1) are displayed separately.

For example, paid-in share capital may be reported as one line on thebalance sheet.

However, some elements of this may meet the requirements for inclusionin Common Equity Tier 1 (CET1) and other elements may only meet therequirements for Additional Tier 1 (AT1) or Tier 2 (T2), or may not meetthe requirements for inclusion in regulatory capital at all.

Therefore, if the bank has some paid-in capital that feeds into thecalculation of CET1 and some that feeds into the calculation of AT1, itshould expand the paid-in share capital line of the balance sheet in thefollowing way (also illustrated in Annex 2 (step 2)):



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In addition, as illustrated above, each element of the expanded balancesheet must be given a reference number/letterfor use in Step 3.

As another example, one of the regulatory adjustments is the deduction ofintangible assets.

While at first it may seem as if this can be taken straight off the face of thebalance sheet, there are a number of reasons why this is unlikely to be thecase.

Firstly, the amount on the balance sheet may combine goodwill, otherintangibles and mortgage services rights.

MSRs are not to be deducted in full (they are instead subject to thethreshold deduction treatment).

Secondly, the amount to be deducted is net of any related deferred taxliability.

This deferred tax liability will be reported on the liability side of thebalance sheet and is likely to be reported in combination with otherdeferred tax liabilities that have no relation to goodwill or intangibles.

Therefore, the bank should expand the balance sheet in the followingway:



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It is important to note that banks will only need to expand elements of thebalance sheet to the extent that this is necessary to reach the componentsthat are used in the composition of capital disclosure template.

So, for example, if all of the paid-in capital of the bank met therequirements to be included in CET1, the bank would not need to expandthis line.

The level of disclosure is proportionate, varying with the complexity ofthe banks balance sheet and its capital structure.

Step 2 is illustrated in Annex 2.

Step 3: Map each of the components that are disclosed in Step 2to the composition of capital disclosure templates

When reporting the disclosure template, described in Section 1 andSection 5, the bank is required to use the reference numbers/ letters fromStep 2 to show the source of every input.

For example, the composition of capital disclosure template includes thelinegoodwill net of related deferred tax liability.

Next to the disclosure of this item in the definition of capital disclosuretemplate the bank should put ad to illustrate how these components ofthe balance sheet under the regulatory scope of consolidation have beenused to calculate this item in the disclosure template.



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Additional comments on the 3 step approach

The Basel Committee considered requiring banks to use a commontemplate to disclose the reconciliation between banksbalance sheets andtheir regulatory capital.

However, it does not feel that this would be possible at this stage giventhat banks balance sheets are not reported in a common way across

jurisdictions due to the application of different accounting standards.

Within a single jurisdiction, the use of a common template may bepossible.

Therefore, the relevant authorities may design a common template that isconsistent with the 3 step approach set out above and require banks use

this in order to achieve greater consistency in the way the 3 step approachis implemented within their jurisdiction.

Section 3: Main features template

Basel I I I requires banks to disclose a description of the main featuresofregulatory capital instruments issued.

While banks will also be required to make available the full terms andconditions of their regulatory capital instruments (see section 4), the

length of these documentsmakes the extraction of the key features aburdensome task.

The issuing bank is better placed to undertake this task than marketparticipants and supervisors that want an overviewof the capital structureof the bank.

Basel II Pillar 3 guidance already includes a requirement that banksprovide qualitative disclosure that sets out Summary information on theterms and conditions of the main features of all capital instruments,

especially in the case of innovative, complex or hybrid capitalinstruments.



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However, the Basel Committee has found that this Basel I I requirementis not met in a consistent way by banks.

The lack of consistency in both the level of detail provided and the formatof the disclosure makes the analysis and monitoring of this informationdifficult.

To ensure that banks meet the Basel II I requirement to disclose the mainfeatures of regulatory capital instruments in a consistent and comparableway, banks are required to complete a main features template.

This template represents the minimum level of summary disclosure thatbanks are required to report in respect of each regulatory capitalinstrument issued.

The template is set out in Annex 3 of this report, along with a descriptionof each of the items to be reported.

Some key points to note about the template are:

- It has been designed to be completed by banks from when the BaselI I I framework comes into effect on 1 January 2013.

It therefore also includes disclosure relating to instruments that are

subject to the transitional arrangements.

- Banks are required to report each regulatory capital instrument,including common shares, in a separate column of the template, suchthat the completed template would provide a main features reportthat summarises all of the regulatory capital instruments of thebanking group.

- The list of main features represents a minimum level of required

summary disclosure.

In implementing this minimum requirement, each Basel Committeemember authority is encouraged to add to this list if there are features



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that it is important to disclose in the context of the banks theysupervise.

- Banks are required to keep the completed main features reportup-to-date, such that the report is updated and made publiclyavailable whenever a bank issues or repays a capital instrument and

whenever there is a redemption, conversion/ write-down or othermaterial change in the nature of an existing capital instrument.

- Given that the template includes information on the amountrecognised in regulatory capital at the latest reporting date, the mainfeatures report should either be included in the banks publishedfinancial reports or, at a minimum, these financial reports mustprovide a direct link to where the report can be found on the banks

website or publicly available regulatory reporting.

Section 4: Other disclosure requirements

In addition to the disclosure requirements set out in Sections 1 to 3, andaside from the transitional disclosure requirements set out in Section 5,the Basel II I rules text makes the following requirementsin respect of thecomposition of capital:

Non-regulatory ratios

Banks which disclose ratios involving components of regulatory capital(egEquity Tier 1,Core Tier 1 orTangible Common Equity ratios)must accompany such disclosures with a comprehensive explanation ofhow these ratios are calculated.

Full terms and conditions

Banks are required to make available on their websites the full terms andconditionsof all instruments included in regulatory capital.

The requirement for banks to make available the full terms andconditions of regulatory capital instruments on their websites will allow



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market participants and supervisors to investigate the specific features ofindividual capital instruments.

An additional related requirement is that all banks must maintain aRegulatory Disclosures section of their websites, where all of theinformation relating to disclosure of regulatory capital is made availableto market participants.

In cases where disclosure requirements set out in this document are metvia publication through publicly available regulatory reports, theregulatory disclosures section of the banks website should providespecific links to the relevant regulatory reports that relate to the bank.

This requirement stems from the supervisory experience that, in many

cases, the benefit of Pillar 3 disclosures is severely diminished by thechallenge of finding the disclosure in the first place.

Ideally much of the information that would be reported in the RegulatoryDisclosures section of the website would also included in the publishedfinancial reports of the bank.

The Basel Committee has agreed that, at minimum, the publishedfinancial reports must direct users to the relevant section of their websiteswhere the full set of required regulatory disclosure is provided.

Section 5: Template during the transitional period

The Basel I I I rules text states that: During the transition phase banksare required to disclose the specific components of capital, includingcapital instruments and regulatory adjustments that are benefiting fromthe transitional provisions.

The transitional arrangements for Basel I I I phase in the regulatoryadjustmentsbetween 1 January 2014 and 1 January 2018.

They require 20% of the adjustments to be made according to Basel I I I in2014, with the residual subject to existing national treatment.



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In 2015 this increases to 40%, and so on, until the full amount of the BaselI I I adjustments are applied from 1 January 2018.

These transitional arrangements create an additional layer of complexityin the definition of capital in the period between 1 January 2013 and 1January 2018, especially due to the fact that existing national treatments ofthe residual regulatory adjustments vary considerably.

This complexity suggests that there would be particular benefits insetting out detailed disclosure requirements during this period to ensurethat banks do not adopt different approaches that make comparisonsbetween them difficult.

This section of the composition of capital disclosure rules text aims to

ensure that disclosure during the transitional period is consistent andcomparable across banks in different jurisdictions.

Banks will be required to use a modified version of the Post 1 January 2018Disclosure Template, set out in Section 1, in a way that captures existingnational treatments for the regulatory adjustments.

The use of a modified version of the Post 1 January 2018 DisclosureTemplate, rather than the development of a completely separate set ofreporting requirements, should help to reduce systems costs for banks.

The template ismodified in just two ways:

(1)An additional column indicates the amounts of the regulatoryadjustments that will be subject to the existing national treatment; and

(2)Each jurisdiction will insert additional rows in four separate placestoindicatewhere the adjustment amounts reported in the added columnactually affect capital during the transition period.

The modifications to the template are set out in Annex 4, along with someexamples of how the template will work in practice.



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Banks are required to use the template for all reporting periods on or afterthe implementation date set out in paragraph 5, and banks are required toreport the template with the same frequency as the publication of theirfinancial statements (typically quarterly or half yearly).

Annex 1

Post 1 January 2018 Disclosure Template

Key points to note about the template set out in this Annex are:

- The template is designed to capture the capital positions of banks

after the transition period for the phasing-in of deductions ends on 1January 2018 (the template for banks to use to report their capitalpositions during this transitional phase is set out in Section 5).

- Certain rows are in italics. These rows will be deleted after all theineligible capital instruments have been fully phased out (ie from 1January 2022 onwards).

- The reconciliation requirements included in Section 2 result in thedecomposition of certain regulatory adjustments.

For example, the disclosure template below includes the adjustmentGoodwill net of related tax liability.

The requirements in Section 2 will lead to the disclosure ofboth thegoodwill component and the related tax liability component of thisregulatory adjustment.

- Regarding the shading: Each dark grey row introduces a new section

detailing a certain component of regulatory capital.

The light grey rows with no thick border represent the sum cells in therelevant section.



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The light grey rows with a thick border show the main components ofregulatory capital and the capital ratios.

- Also provided below is a table that sets out an explanation of each lineof the template, with references to the appropriate paragraphs of theBasel I I I text.



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Set out in the following table is an explanation of each row of the templateabove.

Regarding the regulatory adjustments banks are required to reportdeductions from capital as positive numbers and additions to capital asnegative numbers.

For example,goodwill (row 8) should be reported as a positive number, asshould gains due to the change in the own credit risk of the bank (row 14).

However, losses due to the change in the own credit risk of the bankshould be reported as a negative numberas these are added back in thecalculation of Common Equity Tier 1.



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41. In general, to ensure that the common templates remain comparableacross jurisdictions there should be no adjustments to the version banksuse to disclose their regulatory capital position.

However, the following exceptionsapply to take account of languagedifferences and to reduce the reporting of unnecessary information:

- The common template and explanatory table above can be translatedby the relevant national authorities into the relevant nationallanguage(s) that implement the Basel standards.

The translated version of the template will retain all of the rowsincluded the template above.

-Regarding the explanatory table, the national version can referencethe national rules that implement the relevant sections of Basel II I.

- Banks are not permitted to add, delete or change the definitionsofany rows from the common reporting template implemented in their

jurisdiction.

This will prevent a divergence of templates that could undermine theobjectives of consistency and comparability.

-This national version of the template will retain the same rownumbering used in the first column of the template above, such thatmarket participants can easily map the national templates to thecommon version above.

However, the common template includes certain rows that referencenational specific regulatory adjustments (row 26, 41, and 56).

The relevant national authority should insert rowsafter each of theseto provide rows for banks to disclose each of the relevant nationalspecific adjustments (with the totals reported in rows 26, 41 and 56).

The insertion of any rows must leave the numbering of the remainingrows unchanged, eg rows detailing national specific regulatory



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adjustments to common equity Tier 1 could be labelled Row 26a, Row26b etc, to ensure that the subsequent row numbers are not affected.

- In cases where the national implementation of Basel I I I applies amore conservativedefinition of an element listed in the templateabove, national authorities may choose between one of twoapproaches:

Approach 1: in the national version of the template maintain the samedefinitions of all rows as set out in the template above, and requirebanks to report the impact of the more conservative national definitionin the designated rows for national specific adjustments (ie row 26,row 41, row 56).

Approach 2: in the national version of the template use the definitionsof elements as implemented in that jurisdiction, clearly labelling themas being different from the Basel II I minimum definition, and requirebanks to separately disclose the impact of each of these differentdefinitions in the notes to the template.

The aim of both approaches is to provide all the information necessaryto enable market participants to calculate the capital of banks on acommon basis.



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Annex 2

Illustration of the 3 step approach to reconciliation

Step 1

Under Step 1 banks are required to take their balance sheet in theirpublished financial statements(numbers reported the middle columnbelow, in a balance sheet that is provided for illustrative purposes) andreport the numbers when the regulatory scope of consolidation is applied(numbers reported in the right hand column below of the illustrativebalance sheet).

If there are rows in the balance sheet under the regulatory scope of

consolidation that are not present in the published financial statements,banks are required to add these and give a value of zero in the middlecolumn.



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Step 2

Under Step 2 banks are required to expand the balance sheet under theregulatory scope of consolidation (revealed in Step 1) to identify all theelements that are used in the definition of capital disclosure template setout in Annex 1.

Set out below are some examples of elements that may need to beexpanded for a particular banking group.

The more complex the balance sheet of the bank, the more items wouldneed to be disclosed.

Each element must be given a reference number / letter that can be usedin Step 3.



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Step 3

Under Step 3 banks are required to complete a column added to the post 1January 2018 disclosure template to show the source of every input.

For example, the Post 1 January 2018 Disclosure Template includes thelinegoodwill net of related deferred tax liability.

Next to the disclosure of this item in the template the bank would berequired to put ad to show that row 7 of the template has beencalculated as the difference between component aof the balance sheetunder the regulatory scope of consolidation, illustrated in step 2, andcomponent d.



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Annex 3

Main features template

Set out below is the template that banks must use to ensure that the key

features of all regulatory capital instruments are disclosed.

Banks will be required to complete all of the shaded cells for eachoutstanding regulatory capital instrument (banks should insert NA ifthe question is not applicable).



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This template was developedin a spreadsheet that will be made availableto banks on the Basel Committeeswebsite.

To complete most of the cells banks simply need to select an option froma drop down menu.

Using the reference numbers in the left column of the table above, the

following table provides a more detailed explanation of what banks arerequired to report in each of the grey cells, including, where relevant, thelist of options contained in the spreadsheetsdrop down menu.



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Annex 4

Disclosure template during the transition phase

The template that banks must use during the transition phase is the same

as the Post 1 January 2018 disclosure template set out in Section 1 exceptfor the following additions (all of which are highlighted in the templatebelow using cells with dotted borders and capitalised text):

- A new column has been added for banks to report the amount of eachregulatory adjustment that is subject to the existing national treatmentduring the transition phase (labelled as the pre-Basel I I I treatment).

Example 1: In 2014 banks will be required to make 20% of the regulatoryadjustments in accordance with Basel II I .

Consider a bank with Goodwill, net of related tax liability of $100 mnand assume that the bank is in a jurisdiction that does not currentlyrequire this to be deducted from common equity.

The bank will report $20 mn in the first of the two empty cells in row 8 andreport $80 mn in the second of the two cells.

The sum of the two cells will therefore equal the total Basel I I I regulatoryadjustment.

- While the new column shows the amount of each regulatoryadjustment that is subject to the existing national treatment, it isnecessary to show how this amount is included under existingnational treatment in the calculation of regulatory capital.

Therefore, new rows have been added in each of the three sections onregulatory adjustments to allow each jurisdiction to set out theirexisting national treatment.

Example 2: Assume that the bank described in the bullet point above is ina jurisdiction that currently requires goodwill to be deducted from Tier 1.



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This jurisdiction will insert a new row in between rows 41 and 42, toindicate that during the transition phase some goodwill will continue tobe deducted from Tier 1 (in effect Additional Tier 1).

The $80 mn that the bank had reported in the last cell of row 8, will thenneed to be reported in this new row inserted between rows 41 and 42.

In addition to the phasing-in of some regulatory adjustments describedabove, the transition period of Basel I I I will in some cases result in thephasing-out of previous prudential adjustments.

In these cases the new rows added in each of the three sections onregulatory adjustments will be used by jurisdictions to set out the impactof the phase-out.

Example 3: Consider a jurisdiction that currently filters out unrealisedgains and losses on holdings of AFS debt securities and consider a bankin that jurisdiction that has an unrealised loss of $50 mn.

The transitional arrangements require this bank to recognise 20% of thisloss (ie $10 mn) in 2014.

This means that 80% of this loss (ie $40 mn) is not recognised. Thejurisdiction will therefore include a row between rows 26 and 27 that

allows banks to add back this unrealised loss.

The bank will then report $40 mn in this row as an addition to CommonEquity Tier 1.

- To take account of the fact that the existing national treatment of aBasel II I regulatory adjustment may be to apply a risk weighting,

jurisdictions will also be able to add new rows immediately prior to therow on risk weighted assets (row 60).

These rows will need to be defined by each jurisdiction to list the BaselI I I regulatory adjustments that are currently risk weighted.



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Example 4: Consider a jurisdiction that currently risk weights definedbenefit pension fund net assets at 200% and in 2014 a bank has $50 mn ofthese assets.

The transitional arrangements require this bank to deduct 20% of theassets in 2014.

This means that the bank will report $10 mn in the first empty cell in row15 and $40 mn in the second empty cell (the total of the two cells thereforeequals the total Basel I I I regulatory adjustment).

The jurisdiction will disclose in one of the inserted rows between row 59and 60 that such assets are risk weighted at 200% during the transitionalphase.

The bank will then be required to report a figure of $80 mn ($40 mn *200%) in that row.



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NUMBER 2

DARPA DEVELOPS TECHN OLOGIES FOR AIDINGDISASTER RELIEF

JUNE 26, 2012

New sea and air delivery systems to enable direct support to disasterzones from offshore container ships

During natural or man-made disasters, the U.S. armed forcesrapidlydeployable airlift, sealift, communication, and medical evacuation andcare capabilities can supplement lead relief agencies in providing aid tovictims.

The Department of Defenses 2012 strategic guidance document includeshumanitarian assistance and disaster relief operations as one of the

missions for 21st Century defense.

DARPAsTactically Expandable Maritime Platform (TEMP) programhas completed the design of innovative technologies to transform



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commercial container ships into self-contained floating supply basesduring disaster relief operations, without needing port infrastructure.

The program envisionsa container ship anchoring offshore of a disasterarea, and the shipscrew delivering supplies ashore using DARPA -developed, modular on-board cranes and air- and sea-delivery vehicles.

To allow military ships and aircraft to focus on unique military missionsthey alone can fulfill, it makes sense to develop technologies to leveragestandard commercial container ships, used around the world daily, as asurge capacity for extended humanitarian assistance and disaster reliefoperations,said Scott Littlefield, DARPA program manager.

DARPA recently completed the first phase of the program, which

developed four key modular systems, all of which are transportable usingstandard 20-foot or 40-foot commercial shipping containers.

The elements include:

- Core support modulescontainer-sized units that

risk management presentation july 2 2012

Documents