Analysis of compliance of the domestic regulatory framework with Basel III requirements

In accordance with the  Strategy for Implementation of Basel III Standards in Serbia (the Strategy), adopted by the Executive Board of the National Bank of Serbia on 17 December 2013, the domestic regulatory framework was analysed from the standpoint of compliance with the standards incorporated in the documents of the Basel Committee on Banking Supervision (BCBS) – A global regulatory framework for more resilient banks and banking systems – revised version, International framework for liquidity risk measurement, standards and monitoring and Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools.

In addition to the above acts, the focus was mainly placed on the legal acts of the European Union introducing Basel III standards which, compared to Basel documents, go into further technical details  – 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 and 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.

The following areas covered by Basel III standards (including Basel II and Basel 2.5) were included:

• Definition and elements of capital, capital adequacy ratios;
• Capital requirements against credit risk – standardised approach; 
• Capital requirements against credit risk – Internal Ratings-Based Approach(IRB approach); 
• Capital requirements against credit risk – credit risk mitigation techniques;
• Capital requirements against credit risk – securitisation;
• Capital requirements against operational risk; 
• Capital requirements against market risks; 
• Large exposures; 
• Liquidity coverage ratio (LCR ratio);
• Capital buffers;
• Оther (settlement/delivery risk, counterparty risk, credit valuation adjustment risk, disclosure of data and information).

Domestic legislation compared with the aforementioned standards and regulations:

• Law on Banks;
• Decision on Capital Adequacy of Banks;
• Decision on Risk Management by Banks.

The analysis detected differences from the EU regulations introducing Basel III standards, mainly in segments of domestic regulations pertaining to regulatory capital requirements, capital requirements against market risks and liquidity ratios, while minor differences were detected in segments related to capital requirements against credit risk and operational risk. It was also concluded that the regulatory framework of the Republic of Serbia needs to be harmonised in segments relating to securitisation, leverage ratios and capital buffers, since these concepts are not regulated by domestic legislation.