Kuala Lumpur, Oct 16 (KYODO) The Association of Southeast Asian Nations has prepared a framework of general principles to steer the establishment of an Asia-Pacific free trade agreement. The “ASEAN Framework for a Comprehensive Regional Economic Partnership” was discussed by ASEAN trade ministers at a one-day informal meeting in Kuala Lumpur yesterday for adoption by leaders of the 10-member group at their summit meeting in Bali next month. The framework sets out “principles under which ASEAN will enhance engagement with FTA partners” with the aim of “establishing a comprehensive economic partnership,” Kyodo News agency reported. ASEAN has FTAs with Japan, China, South Korea, India, Australia and New Zealand. The latest move reflects a deep concern among some member countries that ASEAN could be sidelined by the US-backed Trans-Pacific Partnership that has attracted attention even as it is being negotiated, especially if Japan decides to come on board, ASEAN official sources said. As a result, ASEAN would like to hasten creation of a regional FTA encompassing the ASEAN members and its FTA partners from outside the region, with ASEAN playing a central role in the initiative. Nine countries involved in negotiations for the TPP are Australia, Chile, New Zealand, Peru, United States and four ASEAN members — Singapore, Brunei, Malaysia and Vietnam. Japan is considering joining the TPP negotiations. “The purpose (of the framework) is to achieve a comprehensive and mutually beneficial economic partnership agreement,” ASEAN’s draft says. “This agreement shall also involve a broader and deeper engagement with ASEAN’s FTA partners and address new and emerging issues.” The general principles in the framework include differential treatment for ASEAN’s less developed members such as Vietnam, Cambodia, Laos and Myanmar. Other principles include ensuring the agreements are transparent and made available to the public, provide for economic and technical cooperation, contain measures to facilitate trade and investment and should contribute to ASEAN’s own plan for regional economic integration and economic development. (KYODO)
Plans in place in case of fallout from Euro Debt Crisis?
1) How will ASEAN contain a firewall in worst case scenerio against a Euro Debt Crisis?
Basel III will require banks to hold 4.5% of common equity (up from 2% in Basel II) and 6% of Tier I capital (up from 4% in Basel II) of risk-weighted assets (RWA). Basel III also introduces additional capital buffers, (i) a mandatory capital conservation buffer of 2.5% and (ii) a discretionary countercyclical buffer, which allows national regulators to require up to another 2.5% of capital during periods of high credit growth. In addition, Basel III introduces a minimum 3% leverage ratio and two required liquidity ratios. The Liquidity Coverage Ratio requires a bank to hold sufficient high-quality liquid assets to cover its total net cash flows over 30 days; the Net Stable Funding Ratio requires the available amount of stable funding to exceed the required amount of stable funding over a one-year period of extended stress.
Macroeconomic Impact of Basel III
An OECD study  released on 17 February 2011, estimates that the medium-term impact of Basel III implementation on GDP growth is in the range of −0.05 to −0.15 percentage point per annum. Economic output is mainly affected by an increase in bank lending spreads as banks pass a rise in bank funding costs, due to higher capital requirements, to their customers. To meet the capital requirements effective in 2015 (4.5% for the common equity ratio, 6% for the Tier 1 capital ratio), banks are estimated to increase their lending spreads on average by about 15 basis points. The capital requirements effective as of 2019 (7% for the common equity ratio, 8.5% for the Tier 1 capital ratio) could increase bank lending spreads by about 50 basis points. The estimated effects on GDP growth assume no active response from monetary policy. To the extent that monetary policy will no longer be constrained by the zero lower bound, the Basel III impact on economic output could be offset by a reduction (or delayed increase) in monetary policy rates by about 30 to 80 basis points.
Basel III is an opportunity as well as a challenge for banks. It can provide a solid foundation for the next developments in the banking sector, and it can ensure that past excesses are avoided. Basel III is changing the way that banks address the management of risk and finance. The new regime seeks much greater integration of the finance and risk management functions. This will probably drive the convergence of the responsibilities of CFOs and CROs in delivering the strategic objectives of the business. However, the adoption of a more rigorous regulatory stance might be hampered by a reliance on multiple data silos and by a separation of powers between those who are responsible for finance and those who manage risk. The new emphasis on risk management that is inherent in Basel III requires the introduction or evolution of a risk management framework that is as robust as the existing finance management infrastructures. As well as being a regulatory regime, Basel III in many ways provides a framework for true enterprise risk management, which involves covering all risks to the business.
Bringing forward key dates
|Date||Milestone: Capital Requirements|
|2013||Minimum capital requirements: Start of the gradual phasing-in of the higher minimum capital requirements.|
|2015||Minimum capital requirements: Higher minimum capital requirements are fully implemented.|
|2016||Conservation buffer: Start of the gradual phasing-in of the conservation buffer.|
|2019||Conservation buffer: The conservation buffer is fully implemented.|
|Date||Milestone: Leverage Ratio|
|2011||Supervisory monitoring: Developing templates to track the leverage ratio and the underlying components.|
|2013||Parallel run I: The leverage ratio and its components will be tracked by supervisors but not disclosed and not mandatory.|
|2015||Parallel run II: The leverage ratio and its components will be tracked and disclosed but not mandatory.|
|2017||Final adjustments: Based on the results of the parallel run period, any final adjustments to the leverage ratio.|
|2018||Mandatory requirement: The leverage ratio will become a mandatory part of Basel III requirements.|
|Date||Milestone: Liquidity Requirements|
|2011||Observation period: Developing templates and supervisory monitoring of the liquidity ratios.|
|2015||Introduction of the LCR: Introduction of the Liquidity Coverage Ratio (LCR).|
|2018||Introduction of the NSFR: Introduction of the Net Stable Funding Ratio (NSFR)|
Ministers also pledged to ensure OTC derivative contracts are cleared centrally although there are doubts that countries will meet the 2012 deadline. “In line with international efforts, we agree to undertake regulatory reforms so that all standardised OTC derivatives contracts are traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties. We will also enact reforms to see that OTC derivatives contracts are reported to trade repositories and non-centrally cleared contracts are subject to higher capital requirements,” the joint statement said.
However a recent poll by Risk.net found that the vast majority of respondents do not believe G-20 members will meet the end-2012 deadline for all standardised OTC derivatives to be cleared through CCPs.
Disclosure of exposure of Euro debt by ASEAN banks
2) To facilitate even greater trade between members, how the removal of barriers with the establishment of market pricing to determine demand and supply as controls to trade?
3) What will the roles of IMF and ADB for ASEAN members?
– Contributed by Oogle.