By Morrison & Foerster LLP
Excerpt: 2011 Emerging
SUMMARY: This commentary summarizes
the Basel III rules. The rules are contained in two separate documents: (1)
Basel III: A global regulatory framework for more resilient banks and banking
systems and (2) Basel III: International framework for liquidity risk
measurement, standards and reporting, together with the results of the BCBS's
comprehensive quantitative impact study.
endorsement of its proposed reforms of the Basel II framework at the G20 Seoul
Summit in November 2010, the Basel Committee on Banking Supervision
("BCBS") published the final Basel III rules on 16 December 2010. The
rules are contained in two separate documents: (1) Basel III: A global
regulatory framework for more resilient banks and banking systems and (2) Basel
III: International framework for liquidity risk measurement, standards and
reporting, 1 together with the results
of the BCBS's comprehensive quantitative impact study ("QIS").2 Certain key features of
the new Basel III rules are summarized below.
Quality and Quantity of Capital
As foreshadowed in their December 2009 proposals 3 and the revised July 2010
proposals, 4 BCBS has resolved that the
predominant form of bank capital should be common shares (or the equivalent for
non-joint stock companies), retained earnings and other reserves ("Common
Equity Tier 1 Capital"); deductions from capital and prudential filters
must be harmonized internationally and generally applied at the level of common
equity; Tier 1 capital instruments other than Common Equity Tier 1 Capital
("Additional Tier 1 Capital") must have very strong equity-like
characteristics, such as deep subordination and fully discretionary,
non-cumulative dividend/coupon payments, and must be perpetual and contain no
incentive to redeem; capital instruments other than Tier 1 Capital ("Tier
2 Capital," since Tier 3 will be eliminated) will need to contain certain
minimum, harmonized characteristics; and all elements of capital will be
required to be disclosed and reconciled to the bank's reported ....
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Peter Green, a partner at Morrison &
Foerster, focuses primarily on structured credit and structured products
transactions. He represents investment banks, issuers, investors and other
providers of financial services in relation to public offerings and private
placements of debt instruments. He has advised in relation to the unwinding and
restructuring of a number of such transactions.
Jeremy Jennings-Mares is a partner in the Morrison & Foerster's
Capital Market practice. His practice specializes in structured products,
derivatives and structured financings, including structured notes, derivatives,
and medium-term note programs and other cross-border debt securities offerings.
He is a contributor to Covered Bonds Handbook, published by Practicing
Law Institute (2010).