Assignment: Global Policy Reform
Assignment: Global Policy Reform
Reflect on the concepts and practices you have learned in NR506 on healthcare systems, politics, and health policy. Read the article that is linked below and share insights as how to make informed decisions on nursing practice and patient outcomes on a global basis. In addition, state how you will apply what you have learned in this course to your upcoming practicum experience. Note: it is welcome but not necessary to post your own references this week in your discussion responses. Enjoy the reading and simply reflect with us.
Read the article by:
Kohl, H.W., Craig, C. L., Lambert, E.V., Inoue, S., Alkandari, J.R., Leetonngin, G., & Kahlmeier, K. (2012). The pandemic of physical inactivity: Global action for public health. The Lancet, 380(9838), 294-305. doi:
http://dx.doi.org/10.1016/S0140-6736(12)60898-8. Link to article (Links to an external site.)Links to an external site.
A systems approach to dealing with the global concern of physical inactivity is discussed.
Good morning, and thank you for the opportunity to participate in this summit. It is a pleasure to be in Sydney. I would like to thank the Financial Review for inviting me to be part of this event, which is indeed timely, since the Basel Committee aims to finalise a number of important regulatory reforms this year.
This morning I will say a few words about our recent proposals and outstanding reforms. I will describe the approach we are taking towards finalising the global regulatory framework. Our goal, as always, is to promote a safe and sound banking system, which is critical to ensuring sustainable economic growth. Australia’s economic growth record over the past two decades is the envy of many. As is the stability of its banking system. But, as regulators, our focus is invariably on the downside risks rather than the upside. And as we have learned from the all-too-frequent episodes of banking distress that have occurred throughout the world – increasing bank resilience in good times is the most efficient and effective way of dealing with periods of stress, which inevitably occur.
Building bank resilience is of course linked to the issue of capital. I will therefore offer a few thoughts on the subject of the level of bank capital. While critically important, regulatory capital is not, however, the sole focus of regulators. Strong supervision is essential and, above all, bank’s internal risk measurement and management are paramount. I will conclude with a look at some other areas where we need to bridge gaps to ensure resilience and profitability over the long term.
The Basel framework as a bridge
A bridge is an apt metaphor for the Basel framework, especially here in Sydney, with the celebrated Harbour Bridge only a few hundred metres away. Bridges must be safe and sound. A safe and sound banking system is exactly what the Basel framework aims to support. Bridges facilitate movement, commerce and trade. The financial system plays a crucial role in directing investment and funds between individuals and businesses. Bridges are complex to design and build. They must be sympathetic to their surroundings and their design and construction rely on the expertise of many parties. Global cooperation between regulators, duly recognising individual circumstances, is the Basel Committee’s tried and tested way of working. And, once complete, international prudential frameworks for banksdeliver benefits for all, as do strong bridges.
As strong bridges bring prosperity, weak bridges can undermine it. A weak bridge jeopardises the safety of those crossing it, and may create wider problems for society at large. A loss of confidence in a structure or its builders shakes confidence in every similar structure. These knock-on effects can be severe and persistent. So it is essential that a bridge, like the Basel framework, is built to last.
We must also not forget the importance of regular maintenance. The Harbour Bridge opened with four traffic lanes but now has eight, together with a complementary tunnel. Some parts are repainted every five years, while others last as long as 30 years. We face the same imperatives with the Basel framework. Maintenance does not imply re-opening every previous decision; we understand the importance of stability and certainty. But it does mean staying vigilant to market developments and keeping in mind the increasingly widespread use of the Basel framework.
Finalising global regulatory reform
The major outstanding topics that we will finalise this year relate to credit risk and operational risk. The Basel Committee recently published proposals on revising these two areas of the regulatory framework. Earlier this year, we finalised the regulatory capital framework for market risk.
One of our main goals this year is to address excessive variability in risk-weighted assets modelled by banks. Some – not us – have already dubbed these reforms “Basel IV”. I do not think the title in itself is important but I note that each moniker bestowed on the global regulatory framework was characterised by a substantial change from the earlier version. Basel II was a significant departure from the Basel I framework; while Basel III was a vastly different set of rules again. The current set of proposed reforms are meant to revise elements of the existing framework rather than introduce new ones. As such, I would not refer to these revisions as constituting “Basel IV”.
At the end of last year, the Committee consulted on proposals to revise the standardised approach for credit risk. This is the approach used by the vast majority of banks around the world. The Committee’s objective was to promote, as much as possible, the standardised approach as a suitable alternative to the modelled approaches. The standardised approach is of course also relevant for banks using internal models, as it may form the basis for an “output floor”, should the Committee decide to adopt such a floor. An output floor would cap the amount of capital benefit a bank using an internally-modelled approach would receive vis-à-vis the standardised approach. The Committee is still considering the specific design and calibration of an output floor.
The Committee recently consulted on revisions to operational risk and the internal ratings-based approaches for credit risk. For operational risk, our proposal did not include a modelled approach. While internal models are an essential part of risk management for many banks, the question is what role they should play in prudential rules. This is particularly relevant for operational risk. The Committee’s recent proposals to calculate capital for credit risk do not eliminate the use of models but place additional constraints around their use for regulatory purposes. I would emphasise the word “additional” – the kinds of constraint that have been proposed already exist in some form in the capital framework. Before we finalise the standards by the end of this year, we will analyse comments and conduct comprehensive quantitative impact studies (QIS).
The resources required to conduct these QIS exercises at banks and supervisory authorities are extensive. The appropriate level of minimum regulatory capital is a central question and we have a dedicated task force that is looking specifically at the calibration of the capital framework. We are tackling this question from the perspective of each individual policy on the table this year but are also taking an aggregate, overall view.
What is the right amount of capital?
Many people think that the Basel framework is all about capital. In many ways, they are right. For the past 25 years, the foundation of the international approach to the prudential regulation of banks has been a risk-based capital ratio. With respect to regulatory capital adequacy, there are two factors to consider: first, what counts as capital; and, second, how much of it do you need.
With Basel III’s definition of capital reforms, the Basel Committee took a great stride towards answering the first question. There is now, I think, a consensus that Common Equity Tier 1 is the most important component of capital, though with an acknowledgement that some other financial instruments may have a role to play in certain circumstances. Charts 1 and 2 show that banks have made very good progress in adjusting and increasing their core capital base. Banks’ leverage ratios and risk-weighted ratios have increased since the global financial crisis, with most of this increase stemming from banks augmenting their capital resources.
Assignment: Global Policy Reform