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Regulatory Tools to Deal with the Banking Lending Risks

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Alternative Lending

Part of the book series: EBI Studies in Banking and Capital Markets Law ((ESBCML))

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Abstract

The analysis of the main risks that a lender faces and poses during its lending business showed that although there are minor differences, both the banks and the AIFs have to deal with similar lending risks.

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Notes

  1. 1.

    Cannata, Basel III and Beyond, 4ff.

  2. 2.

    CRR and CRD IV introduced capital requirements, Single Supervisory Mechanism (SSM regulation), Bank recovery and resolution directive (BRRD) and Single Resolution Mechanism (SRM). For more see: ECB, Bank bias in Europe: effects on systemic risk and growth, No 1797, May 2015, 23f.

  3. 3.

    Cranston et al., Principles of Banking Law, 31ff.

  4. 4.

    Ouarda Merrouche, “What Caused the Global Financial Crisis? —Evidence on the Drivers of Financial Imbalances 1999–2007,” n.d., 8ff.; “Reducing the Moral Hazard Posed by Systemically Important Financial Institutions - Financial Stability Board 1ff., http://www.fsb.org/2010/11/r_101111a/ (accessed 8 February 2019); “Systemically Important Banks and Capital Regulation Challenges | READ Online,” OECD iLibrary, 5ff., https://read.oecd-ilibrary.org/economics/systemically-important-banks-and-capital-regulation-challenges_5kg0ps8cq8q6-en (accessed 8 February 2019); “Get the Report: Financial Crisis Inquiry Commission,” xviiff., https://fcic.law.stanford.edu/report (accessed 8 February 2019).

  5. 5.

    “Elements of Effective Macroprudential Policies - Financial Stability Board 4, http://www.fsb.org/2016/08/elements-of-effective-macroprudential-policies/ (accessed 8 February 2019).

  6. 6.

    “Macroprudential Policy Tools and Frameworks – Progress Report to G20 - Financial Stability Board 4, http://www.fsb.org/2011/10/r_111027b/ (accessed 8 February 2019).

  7. 7.

    “Key Aspects of Macroprudential Policy,” 19, https://www.imf.org/en/Publications/Policy-Papers/Issues/2016/12/31/Key-Aspects-of-Macroprudential-Policy-PP4803 (accessed 8 February 2019); “Macroprudential Policy Tools and Frameworks – Progress Report to G20 - Financial Stability Board 12.

  8. 8.

    Simon Gleeson, International Regulation of Banking Capital and Risk Requirements. Oxford, 2012, 2.33.

  9. 9.

    C. Goodhart, and E. Avgouleas, “A Critical Evaluation of Bail-ins as Bank Recapitalisation Mechanisms,” 2014, 4, http://poseidon01.ssrn.com/delivery.php?ID=877004071119090006096111126092071072042016062081050044108028002009081074030088085026119022001101020104098117078073014126127117126076055079016108020064006104113001070009078094000088093000089096100007103068080006026090094122074005090084100021092026115&EXT=pdf (accessed March 2019).

  10. 10.

    Ibid, 2.34.

  11. 11.

    Ibid., 2.38.

  12. 12.

    Martin Brownbridge, Colin Kirkpatrick and Samuel Munzele Maimbo, “Prudential Regulation,” Finance and Development Briefing Papers, September 2002, http://www.seed.manchester.ac.uk/medialibrary/IDPM/working_papers/archive/fd/fdbrief3.pdf (accessed March 2019).

  13. 13.

    Cannata, Basel III and Beyond, 55ff.

  14. 14.

    Douglas J. Elliott, “A Primer on Bank Capital,” The Brookings Institution, 28 January 2010, 1ff.; Hennie van Greuning and Sonja Brajovic Bratanovic, Analyzing Banking Risk: A Framework for Assessing Corporate Governance and Risk Management, Third Edition (Washington, DC: World Bank, 2009), 122.

  15. 15.

    Anat R. Admati et al., “Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity Is Not Expensive,” SSRN Electronic Journal, 2011, https://doi.org/10.2139/ssrn.1669704; David Miles, Jing Yang, and Gilberto Marcheggiano, “Optimal Bank Capital,” Discussion Paper (Monetary Policy Committee Unit, Bank of England, 1 April 2011), https://econpapers.repec.org/paper/mpcwpaper/0031.htm; Avgouleas and Cullen, “Excessive Leverage and Bankers’ Pay.”

  16. 16.

    Dirk Schoenmaker, “Regulatory Capital: Why Is It Different?” SSRN Scholarly Paper (Rochester, NY: Social Science Research Network, 20 February 2015), 8, https://papers.ssrn.com/abstract=2568158.

  17. 17.

    “International Convergence of Capital Measurement and Capital Standards,” 15 July 1988, https://www.bis.org/publ/bcbs04a.htm.

  18. 18.

    “Council Directive 93/6/EEC of 15 March 1993 on the Capital Adequacy of Investments Firms and Credit Institutions,” https://eur-lex.europa.eu/eli/dir/1993/6/oj (accessed 11 February 2019); “Council Directive 89/647/EEC of 18 December 1989 on a Solvency Ratio for Credit Institutions,” text/html; charset=UNICODE-1–1-UTF-8, Official Journal L 386, 30/12/1989 P. 0014 - 0022; Finnish special edition: Chapter 6 Volume 3 P. 0039; Swedish special edition: Chapter 6 Volume 3 P. 0039, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:31989L0647&from=EN (accessed 11 February 2019).

  19. 19.

    “Council Directive 93/6/EEC of 15 March 1993 on the Capital Adequacy of Investments Firms and Credit Institutions,” Art.2; “International Convergence of Capital Measurement and Capital Standards,” 8ff.; “Council Directive 89/647/EEC of 18 December 1989 on a Solvency Ratio for Credit Institutions,” Art.5.

  20. 20.

    The ratio is as follows: Regulatory Capital/Risk-weighted assets (RWA) ≥ 8%. For more see: Jean Dermine, Bank Valuation & Value-Based Management: Deposit and Loan Pricing, Performance Evaluation, and Risk Management, Second Edition (New York: McGraw-Hill Education, 2015), 183f.

  21. 21.

    “Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework,” 10 June 2004, https://www.bis.org/publ/bcbs107.htm.

  22. 22.

    One of the most important novelties of Basel II was the new methodology to calculate the risk weighting of the bank’s assets. In Basel II, the risk weight calculation was more sophisticated and more risk-sensitive. Total risk-weighted assets are calculated by multiplying the capital requirements for market risk and operational risk by 12.5 (i.e., the reciprocal of the minimum capital ratio of 8%) and adding the resulting figures to the sum of risk-weighted assets for credit risk. This saying, the measurement of the capital requirements is determined by three risk categories: (a) credit risk; (b) market risk; and (c) operational risk. Thus, in contrast to Basel I, where the focus of the capital requirements was to cover credit risk, Basel II focus was to cover credit risk, market risk, and operational risk. The equation to calculate the total capital that a bank was required to hold is the following: \({\text{Total Capital}} = 0.08 \times ({\text{credit risk RWA}} + {\text{market risk RWA}} + {\text{operational risk RWA}})\). For more see: Basel II, 12; Basel II Ruth Wandhöfer, Transaction Banking and the Impact of Regulatory Change: Basel III and Other Challenges for the Global Economy (Basingstoke, UK: Palgrave Macmillan, 2014), 104; ohn Hull, Risk Management and Financial Institutions, Fifth Edition (Hoboken, NJ: Wiley, 2018), 360.

  23. 23.

    On the one hand, the Basel II supervisory review process aims to ensure that banks have enough capital to cover all the risks in their business and on the other hand to motivate banks to develop and use better risk management tools to monitor and manage their risks. For more see: Basel II’, 205ff.; Juan Fernández de Guevara Radoselovics and José Manuel Pastor Monsálvez, Crisis, Risk and Stability in Financial Markets (Houndmills, Basingstoke: Palgrave Macmillan, 2013), 76–79., http://public.eblib.com/choice/publicfullrecord.aspx?p=1161395.

  24. 24.

    “Basel II,” 10 June 2004, pts 2, 3 and 4.

  25. 25.

    “DIRECTIVE 2006/48/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 June 2006 Relating to the Taking up and Pursuit of the Business of Credit Institutions (Recast),” Recital 9, 27, 35, 36, 58, 62, https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A32006L0048 (accessed 18 February 2019); “DIRECTIVE 2006/49/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 June 2006 on the Capital Adequacy of Investment Firms and Credit Institutions (Recast),” Recital 5, 14, 16, 24, https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex%3A32006L0049 (accessed 18 February 2019).

  26. 26.

    E. Avgouleas, Governance of Global Financial Markets: The Law, the Economics, the Politics, Ch. 3.

  27. 27.

    Stephen Valdez and Philip Molyneux, An Introduction to Global Financial Markets, Seventh Edition, 2013, 275 “capital ratio is the relationship (ratio) between capital and lending (risk) weighted assets”.

  28. 28.

    A Blundell-Wignall P. Atkinson, “Thinking Beyond Basel III: Necessary Solutions For Capital And Liquidity,” OECD Journal: Financial Market Trends 1 (2010): 2, available at: http://www.oecd.org/finance/financialmarkets/45314422.pdf (accessed March 2019).

  29. 29.

    Basel Committee on Banking Supervision. Finalizing post-crisis reforms: an update. A report to G20 Leaders https://www.bis.org/bcbs/publ/d344.pdf (accessed December 2015).

  30. 30.

    AAA (the best rating after the supersafe-german bonds) rating by Credit Rating Agencies.

  31. 31.

    Adam Admati and Martin Hellwig, “The Bankers’ new clothes”, 96.

  32. 32.

    Simon Gleeson, International Regulation of Banking Capital and Risk Requirements. Oxford, 2012, 2.51.

  33. 33.

    For the discussion about UBS see: “Swiss heads ‘roll: the demise of UBS,” http://www.independent.co.uk/news/business/analysis-and-features/swiss-heads-roll-the-demise-of-ubs-8262207.html (accessed March 2019); Dr. Tobias Straumann “The UBS Crisis in Historical Perspective,” file:///C:/Users/User/Downloads/184618_Straumann_en%20(1).pdf (accessed March 2019).

  34. 34.

    R. Romano “For Diversity in the International Regulation of Financial Institutions: Rethinking the Basel Architecture, 2012, 29, http://www3.nd.edu/~ndlaw/prog-law-economics/Romano.pdf (accessed March 2019); BCBS, “Finalising Post Crisis Reforms: An Update,” November 2015, 2.

  35. 35.

    Avinash Persaud et al., “He Warwick Commission on International Financial Reform: In·Praise of UnievelPlaying Fields', December 2009,” 12, https://www2.warwick.ac.uk/research/warwickcommission/financialreform/report/chapter_2.pdf (accessed December 2015).

  36. 36.

    Institutions’ exposure to each other, see E. Avgouleas, “Cranston Principles of Banking Law,” Draft 2016, Chapter 2, 4.

  37. 37.

    Ibid.

  38. 38.

    BCBS, “Finalising Post Crisis Reforms: An Update,” November 2015, 2.

  39. 39.

    Ibid.

  40. 40.

    Ibid.

  41. 41.

    See also, E. Avgouleas, “The Reform of ‘Too – big – to - fail Bank. A New Regulatory Model for the Institutional Separation of ‘casino’ from ‘utility’ Banking”, 2010, 3, where he says: “too-big-to-fail’ institutions operate under an implicit government undertaking that, although a private business, their continuous existence as a going concern is guaranteed by the taxpayer whatever the circumstances of the institution’s failure,” http://poseidon01.ssrn.com/delivery.php?ID=776114008100073127083095008096117014038018014015006038127117106011069081076117011007106099010022103035124023024122011097082021126008014016039097080001113119096122037061009111121102123096072112003031064127089102083069117025127030123101125066084114117&EXT=pdf (accessed March 2019).

  42. 42.

    See E. Avgouleas, and C. Goodhart, and Schoemaker Dirk, “Living Wills as a Catalyst for Action,” 2010, 2 where they say that A Living Will is a recovery and resolution plan to be used when a bank may get into difficulties. The G20 has requested Living Wills to be drawn up for the top 30 global banks, http://poseidon01.ssrn.com/delivery.php?ID=163082093087069076077109120000093113125002071065025035011068114075029113002013098074036063099027006049113024113004103067119103126001025021028018003026123022094073055038105003116029024078088122109121064028086116119112120122004081091101116065088001&EXT=pdf (accessed March 2019).

  43. 43.

    E. Avgouleas, “Cranston Principles of Banking Law,” Draft 2016, Chapter 2, 1.

  44. 44.

    Ibid.

  45. 45.

    Ibid.

  46. 46.

    Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC.

  47. 47.

    Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012.

  48. 48.

    Cranston et al., Principles of Banking Law, 43ff.

  49. 49.

    EBA, “The Single Rulebook,” https://eba.europa.eu/regulation-and-policy/single-rulebook (accessed March 2019).

  50. 50.

    BSBS “Basel III:A Global Regulatory Framework for More Resilient Banks and Banking Systems,” 12.

  51. 51.

    D. Chorafas, Basel III, the Devil and Global Banking (Palgrave Macmillan, 2012), 62.

  52. 52.

    J. Ramirez, Handbook of Basel III Capital. Wiley, 2017, 11f.

  53. 53.

    Anat R. Admati, Peter M. DeMarzo, Hellwig Martin, and Paul Pfleiderer, “Fallacies, Irrelevant Facts and Myths in the Discussion of Capital Regulation. Why Bank Equity Is Not Expensive?” 10, https://www.gsb.stanford.edu/faculty-research/working-papers/fallacies-irrelevant-facts-myths-discussion-capital-regulation-why (accessed December 2015).

  54. 54.

    E. Avgouleas, Governance of Global Financial Markets. Cambridge, 2012, 322 – “Tier 2 capital instruments will be harmonized and so-called Tier 3 capital instruments, which were only available to cover trading book risks, have been eliminated. Finally, to improve market discipline, the transparency of the capital base will be improved, with all elements of capital required to be disclosed along with a detailed reconciliation to the reported accounts”.

  55. 55.

    BSBS, “Basel III:A global regulatory framework for more resilient banks and banking systems,” 13ff.; R. Wandhofer, “Transaction Banking and the Impact of Regulatory Change,” Palgrave Macmillan, 2014, 117.

  56. 56.

    Basel III includes a list of criteria which all of them must be met in order an instrument to be included in CET1. To summarize, the criteria state that CET1 Capital holders must absorb first the losses and must receive last any payment in case of liquidation. These instruments are always perpetual and distribution is never mandatory. See: Basel III, 14f.

  57. 57.

    As in CET1, Basel III defines criteria which all of them must be met in order an instrument to be included in AT1. One major difference with the CET1 is that AT1 instruments can be bought back by the issuer, after 5 years and with supervisory approval. For more see: Basel III, 15ff.

  58. 58.

    Basel III, 17.

  59. 59.

    Basel III, 18f.; R. Wandhofer, Transaction Banking and the Impact of Regulatory Change. Palgrave Macmillan, 2014, 118.

  60. 60.

    Bart Joosen, “Regulatory Capital Requirements and Bail in Mechanisms” (March 29, 2015). Available at SSRN: https://ssrn.com/abstract=2586682, 14f.; Cranston et al., Principles of Banking Law, 61f.

  61. 61.

    Cannata, Basel III and Beyond, 155f.

  62. 62.

    Basel III, 5ff.

  63. 63.

    Cannata, Basel III and Beyond, 171.

  64. 64.

    Common Equity Tier 1 must first be used to meet the minimum capital requirements (including the 6% Tier 1 and 8% Total capital requirements if necessary), before the remainder can contribute to the capital conservation buffer. For more see: “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems - Revised Version June 2011,” 1 June 2011, 55ff., https://www.bis.org/publ/bcbs189.htm.

  65. 65.

    “Basel III 54ff.; Emilios Avgouleas, Governance of Global Financial Markets: The Law, the Economics, the Politics, International Corporate Law and Financial Market Regulation (Cambridge: Cambridge University Press, 2012), 324f.

  66. 66.

    During periods of economic growth banks make available more credit and the risks are assessed to be low. In the downturn, loans become riskier, banks reduce the availability of credit, losses from loans are realized, and banks have to find more expensive alternative ways to raise capital. The countercyclical buffer makes the cost of lending higher, because banks during periods of excess credit growth will need more regulatory capital; therefore, it will be unattractive for a bank to provide credit in an excess way and without proper credit assessment procedures. For more see: Juan Ramirez, Handbook of Basel III Capital: Enhancing Bank Capital in Practice (Southern Gate, Chichester, West Sussex, UK: Wiley, 2017), 14.

  67. 67.

    “Basel III,” 57ff.

  68. 68.

    BCBS, “Global Systemically Important Banks: Updated Assessment Methodology and the Higher Loss Absorbency Requirement,” 3 July 2013, 3, https://www.bis.org/publ/bcbs255.htm.

  69. 69.

    In USA, the Federal Reserve Board has adopted a different approach. The capital surcharge for the US systemically important banks is calculated using two different methods, including an alternate method of calculation than the one under the Basel framework. The result is a buffer that can vary between 1 and 4.5% CET1 capital of risk-weighted assets. For more see: “Global Systemically Important Banks 12ff.; “Regulatory Capital Rules: Implementation of Capital Requirements for Global Systemically Important Bank Holding Companies,” n.d., 13; “Regulatory Capital Rules: Implementation of Risk-Based Capital Surcharges for GSIBs,” Accenture Finance & Risk Blogs (blog), 21 September 2015, https://financeandriskblog.accenture.com/regulatory-insights/regulatory-alert/regulatory-capital-rules-implementation-of-risk-based-capital-surcharges-for-gsibs.

  70. 70.

    “Basel III: Finalising Post-Crisis Reforms,” 1–2., https://www.bis.org/bcbs/publ/d424.htm (accessed 26 March 2019).

  71. 71.

    Ramirez, Handbook of Basel III Capital, 9.

  72. 72.

    “Basel III: Finalising Post-Crisis Reforms,” 4ff.

  73. 73.

    BCBS “Guidance on Credit Risk and Accounting for Expected Credit Losses,” December 2015, 1ff.

  74. 74.

    “Basel III: Finalising Post-Crisis Reforms,’ 36.

  75. 75.

    BCBS, “Basel III: Finalising Post-Crisis Reforms,” 53ff.

  76. 76.

    “Basel III 1 June 2011, 30.

  77. 77.

    For more information about the formulas used to calculate CVA capital charge see: BCBS, “Basel III: Finalising Post-Crisis Reforms,” 109ff.

  78. 78.

    “Basel III 1 June 2011, 47ff.

  79. 79.

    BCBS, “Minimum Capital Requirements for Market Risk,” January 14, 2016, 1ff.., http://www.bis.org/bcbs/publ/d352.htm.

  80. 80.

    BCBS, “Minimum Capital Requirements for Market Risk,” 14 January 2019, 19ff. and 66ff., https://www.bis.org/bcbs/publ/d457.htm.

  81. 81.

    John Hull, Risk Management and Financial Institutions, Fifth Edition (Hoboken, NJ: Wiley, 2018), 525.

  82. 82.

    The marginal coefficients increase with the size of the BI. For banks with a BI less than or equal to €1bn, the BIC is equal to BI × 12%. For banks with BI between €1bn and €30 bn, the BIC is equal to BI X 15%, and for banks with BI more than €30 bn, the BIC is equal to BIX18%. For more see: BCBS “Basel III: Finalising Post-Crisis Reforms,” 128.

  83. 83.

    Peter Sands, Gordon Liao, and Yueran Ma, “Rethinking Operational Risk Capital Requirements,” Journal of Financial Regulation 4, no. 1 (1 March 2018): 9f., https://doi.org/10.1093/jfr/fjx009.

  84. 84.

    “Interest Rate Risk in the Banking Book,” 21 April 2016, 4ff., https://www.bis.org/bcbs/publ/d368.htm; Martin Neisen and Stefan Röth, eds., Basel IV: The Next Generation of Risk Weighted Assets, Wiley Finance (Weinheim: Wiley–VCH Verlag GmbH & Co. KGaA, 2017), 291f.

  85. 85.

    “Basel III 1 June 2011, 61ff.; D’Hulster, “‘The Leverage Ratio: A New Binding Limit on Banks World Bank Group, Financial Sector and Private Sector Vice-Presidency,” 1ff.

  86. 86.

    D’Hulster, “‘The Leverage Ratio: A New Binding Limit on Banks.’ World Bank Group, Financial Sector and Private Sector Vice-Presidency,” 2.

  87. 87.

    Canada has established an “assets to capital multiple test”, which is applied at the level of consolidated banking groups and it measures the relation between the consolidated assets and consolidated capital of the group. The limit set is that the assets should be maximum 20 times the size of the capital (meaning a 5% leverage ratio). Switzerland’s leverage ratio is the relation between Tier 1 capital and total adjusted assets and it can vary between 3 and 5%. For more see: Cannata, Basel III and Beyond, 193f.

  88. 88.

    Wandhöfer, Transaction Banking and the Impact of Regulatory Change, 138ff.

  89. 89.

    For more about liquidity risk see Banking Risk Chapter: Liquidity Risk and Hull, Risk Management and Financial Institutions, 2018, 385.

  90. 90.

    “BIS, ‘Principles for Sound Liquidity Risk Management and Supervision - Final Document’.”

  91. 91.

    “Basel III 1 June 2011, 8.

  92. 92.

    Unencumbered” means not pledged (either explicitly or implicitly) to secure, collateralise or credit-enhance any transaction. See: “Basel III: International Framework for Liquidity Risk Measurement, Standards and Monitoring,” 16 December 2010, para. 27., https://www.bis.org/publ/bcbs188.htm.

  93. 93.

    “Basel III: International Framework for Liquidity Risk Measurement, Standards and Monitoring,” December 16, 2010, para. 15ff., https://www.bis.org/publ/bcbs188.htm.

  94. 94.

    Ibid., para. 20–42.

  95. 95.

    Cannata, Basel III and Beyond, 215ff.; “Basel III: International Framework for Liquidity Risk Measurement, Standards and Monitoring,” December 16, 2010, para. 54ff.

  96. 96.

    “Basel III: International Framework for Liquidity Risk Measurement, Standards and Monitoring,” December 16, 2010, para.

  97. 97.

    Ibid., para. 124; Cranston et al., Principles of Banking Law, 60.

  98. 98.

    First, to gain an understanding of the basic aspects of a bank’s liquidity needs, banks should frequently conduct a contractual maturity transformation mismatch assessment. Second, banks should analyze the concentrations of wholesale funding provided by specific counterparties, instruments, and currencies. Third, the amount of unencumbered assets a bank has which could potentially be used as collateral for secured funding must be measured. Fourth, the Liquidity Coverage Ratio (LCR) should also be assessed in each significant currency. This will reduce foreign exchange risk. Finally, market-wide data on asset prices and liquidity are a valuable source of data on potential liquidity difficulties. For more see: “Basel III” June 1, 2011, 9ff and “Basel III: International Framework for Liquidity Risk Measurement, Standards and Monitoring,” December 16, 2010, para. 140ff.

  99. 99.

    Avgouleas, Governance of Global Financial Markets, 339ff.

  100. 100.

    FSB, “Principles on Loss-Absorbing and Recapitalisation Capacity of G-SIBs in Resolution: Total Loss-Absorbing Capacity (TLAC) Term Sheet,” 9 November 2015.

  101. 101.

    FSB, 5ff.

  102. 102.

    Juan Fernández de Guevara Radoselovics and José Manuel Pastor Monsálvez, Crisis, Risk and Stability in Financial Markets (Houndmills, Basingstoke: Palgrave Macmillan, 2013), 71ff., http://public.eblib.com/choice/publicfullrecord.aspx?p=1161395.

  103. 103.

    “Supervisory Review and Evaluation (SREP) and Pillar 2 - European Banking Authority, https://eba.europa.eu/regulation-and-policy/supervisory-review-and-evaluation-srep-and-pillar-2 (accessed 26 March 2019).

  104. 104.

    Ramirez, Handbook of Basel III Capital, 7.

  105. 105.

    BCBS, “Core Principles for Effective Banking Supervision,” 14 September 2012, 21ff., https://www.bis.org/publ/bcbs230.htm.

  106. 106.

    “Pillar 3 Disclosure Requirements - Updated Framework,” 27 February 2018, 1f., https://www.bis.org/bcbs/publ/d432.htm.

  107. 107.

    EBA, “Implementing Basel III in Europe - European Banking Authority, https://eba.europa.eu/regulation-and-policy/implementing-basel-iii-europe (accessed 3 April 2019).

  108. 108.

    European Commission, “PRESS RELEASES - Press release - CRD IV/CRR – Frequently Asked Questions,” http://europa.eu/rapid/press-release_MEMO-13-272_en.htm (accessed 5 April 2019).

  109. 109.

    Linklaters, “CRR2 and CRDV – The New EU Prudential Regulatory Landscape | Publications | Insights | Linklaters,” 25 June 2019, 1, https://www.linklaters.com/en/insights/publications/2019/june/crr2-and-crdv-the-new-eu-prudential-regulatory-landscape.

  110. 110.

    “REGULATION (EU) 2019/ 876 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL - of 20 May 2019 - Amending Regulation (EU) No 575 / 2013 as Regards the Leverage Ratio, the Net Stable Funding Ratio, Requirements for Own Funds and Eligible Liabilities, Counterparty Credit Risk, Market Risk, Exposures to Central Counterparties, Exposures to Collective Investment Undertakings, Large Exposures, Reporting and Disclosure Requirements, and Regulation (EU) No 648/ 2012,’ n.d., (CRR II).

  111. 111.

    “DIRECTIVE (EU) 2019/ 878 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL - of 20 May 2019 - Amending Directive 2013/ 36/ EU as Regards Exempted Entities, Financial Holding Companies, Mixed Financial Holding Companies, Remuneration, Supervisory Measures and Powers and Capital Conservation Measures,” n.d. (CRD V).

  112. 112.

    Linklaters, Linklaters, “CRD IV: The European Response to Basel III and the Impact on Tier 1 and Tier 2 Bank Capital,’ 3, https://www.linklaters.com/pdfs/mkt/london/A13805377.pdf (accessed 7 April 2019).

  113. 113.

    “European Commission - PRESS RELEASES - Press Release - CRD IV/CRR – Frequently Asked Questions,” 14f., http://europa.eu/rapid/press-release_MEMO-13-272_en.htm (accessed 5 April 2019); Linklaters, “Comparison between Capital Requirements Directive IV and Basel III,” 4, https://www.linklaters.com/en/insights/publications/2011/august/comparison-between-capital-requirements-directive-iv-and-basel-iii (accessed 7 April 2019).

  114. 114.

    As in Basel III, when a bank’s CET1 capital ratio falls below 7% (CET1 plus capital conservation buffer of 2.5%), specific safeguards kick in and limit the amount of dividend and bonus payments a bank can make. The further the buffer reduces, the stricter the limits become. This prevents the bank’s capital to be further eroded by such payments. For more see: “European Commission - PRESS RELEASES - Press Release - CRD IV/CRR – Frequently Asked Questions,” 24.

  115. 115.

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Peridis, P. (2022). Regulatory Tools to Deal with the Banking Lending Risks. In: Alternative Lending. EBI Studies in Banking and Capital Markets Law. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-13471-5_5

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