High-level considerations on proportionality

In July 2022 the BCBS issued a paper setting out High-level considerations on proportionality which ”.. does not constitute new standard, guidelines or sound practices …” but is intended to “… support the decision-making process of proportionality in a broad variety of jurisdictions, in a way that would not undermine financial stability and/or the safety of financial institutions.”

The aim of the paper is to help both BCBS and non-BCBS regulators when determining how to apply proportionality. Here proportionately means the setting of regulatory requirements that are most appropriate to the size and nature of the risks that different banking entities are exposed to taking into account the size, complexity and sophistication of the domestic financial system. For example the same rules are unlikely to be appropriate for small local retail banks compared with larger domestic banks with international exposures.

To achieve this aim the paper sets out a number of higher level considerations, such as “Effective proportionate approaches strive to be both conservative and simple to understand and implement”, intended to help regulators achieve a more consistent approach when considering proportionality. These are supported by a number of technical appendices that set out more detailed content on topics such as segmentation (of banks in a jurisdiction), the definition of capital, calculating RWAs, leverage and liquidity ratios, large exposures, Pillar 2 oversight and disclosures. These appendices are not intended to be prescriptive.

See Chapters 21 and 28 for a broader discussion of this topic.