Responding to Global Financial Regulation
Since the global financial crisis of 2008, financial institutions have been required to hold to stricter standards of financial soundness and management discipline. New regulations have been introduced and existing regulations like capital adequacy ratios have been tightened in the quest to establish a more stable financial system. At the same time, new challenges and issues have been thrown up in the process. In this section we look at the trend for global financial regulation and our response.
Trend in Global Financial Regulation
Higher financial standards expected of G-SIBs
G-SIBs refers to Global Systemically Important Banks, institutions whose failure would have a major impact on the global financial system according to the Financial Stability Board whose membership derives from financial supervisory authorities around the world. Basel Ⅲ stipulates a surcharge on the required capital ratio of G-SIBs (from 1.0% to 2.5%) to be phased in from 2016. This would represent a surcharge of 1.5% for MUFG up to 2019 under the current bucket allocation.
MUFG’s Response
MUFG has already achieved levels required by the end of March 2019
As the table at right shows, MUFG is in compliance with the levels required by end-March 2015 and it has already reached the levels required by end-March 2019.
MUFG stance
In order to avoid a reprise of the financial crisis, reform and strengthened regulations are required both for individual institutions and the system as a whole. On the other hand, we must ensure that the new regulations do not bring uncertainty to both financial markets and the real economy or hamper healthy development and innovation. It is therefore necessary to carefully consider the impact of new regulations, as well as the coherence between different sets of regulations, all in the context of the global regulatory framework. MUFG believes the fundamental mission of a financial institution is to support economic growth and to that end we support the creation of a global regulatory framework based on international cooperation and public/private partnerships.
Key Issues Going Forward
The following regulatory issues are at the center of global debate:
Total Loss Absorbing Capacity (TLAC)
In addition to Basel Ⅲ capital requirements, there is a call for additional capital and liabilities (which meet certain subordinated conditions) which will allow orderly resolution not dependent on an injection of public funds.
Interest rate risk in the banking book (IRRBB)
The valuation of assets and liabilities held in the banking book may fluctuate in accordance with interest rate changes. Whether to require to hold capital enough to cover IRRBB is being discussed.
Review of risk-weighted asset measurement methodologies
Measurement methodologies for credit, market and operational risk are being reviewed with a view to restoring trust in regulatory capital and to improve comparability.
