ING Direct 2011 Annual Report Download - page 303

Basel III
In addition, the Basel Committee on Banking Supervision has announced higher global minimum capital standards for banks, and has
introduced a new global liquidity standard and a new leverage ratio. The Committee’s package of reforms, collectively referred to as
the ‘Basel III’ rules, will, among other requirements, increase the amount of common equity required to be held by subject banking
institutions, prescribe the amount of liquid assets and the long-term funding a subject banking institution must hold at any given moment,
and limit leverage. Banks will be required to hold a ‘capital conservation buffer’ to withstand future periods of stress such that the total
Tier 1 common equity ratio, when fully phased in on 1 January 2019, will rise to 7%. Basel III also introduces a ‘countercyclical buffer’ as an
extension of the capital conservation buffer, which permits national regulators to require banks to hold more capital during periods of high
credit growth (to strengthen capital reserves and moderate the debt markets). Further, Basel III calls for stricter definitions of capital that
will have the effect of disqualifying many hybrid securities, potentially including those issued by the Group, from inclusion in regulatory
capital, as well as the higher capital requirements for trading, derivative and securitisation activities to be introduced at the end of 2011
as part of a number of reforms to the Basel II framework. In addition, the Basel Committee and Financial Stability Board (FSB) are currently
considering measures that may have the effect of requiring higher loss absorbency capacity, liquidity surcharges, exposure limits and
special resolution regimes for ‘systemically important financial institutions’ (SIFIs) and so-called ‘Global’ SIFIs (G-SIFI), in addition to the
Basel III requirements otherwise applicable to most financial institutions. ING has been designated as a G-SIFI.
For European banks these requirements will be implemented through the Capital Requirement Directive (CRD) IV, which might deviate in
its final state from the original Basel III requirements. While the full impact of the new Basel III rules, and any additional requirements for
SIFIs or G-SIFIs if and as applicable to the Group, will depend on how they are implemented by national regulators, including the extent to
which regulators and supervisors can set more stringent limits and additional capital requirements or surcharges, as well as on the
economic and financial environment at the time of implementation and beyond, we expect these rules can have a material impact on
ING’s operations and financial condition and may require the Group to seek additional capital. Further, the International Accounting
Standards Board (‘IASB’) is considering changes to several IFRS standards, which changes could also have a material impact on our
reported results and financial condition.
Solvency II
The European Council has agreed upon a full scale revision of the solvency framework and prudential regime applicable to insurance
and reinsurance companies known as ‘Solvency II’, which was adopted on 25 November 2009 (Directive 2009/138/EG). A key aspect
of Solvency II is the closer alignment of the assessment of risks and capital requirements with economic capital methodologies. Under the
Solvency II regime, insurance companies may be permitted to make use of an internal economic capital model as a basis for calculation of
their capital needs and solvency position (in the Netherlands, such a model (including ING’s model) has to be approved by the Dutch
Central Bank).
The final text of the Level I Framework Directive includes rules regarding, among other things, own funds, capital requirements,
investments and group supervision. Following adoption of this Level I Framework Directive, the European Commission and EIOPA
(European Insurance and Occupational Pensions Authority), formerly CEIOPS, have initiated the development of detailed rules following
the Lamfalussy process. Under this process, Directives related to financial institutions are developed on the basis of a four level approach
intended to complement the principles of the Directive Level 2 measures will be issued by the European Commission (delegated acts and/
or implementing technical standards proposed by EIOPA) and Level 3 guidance will be issued by EIOPA.
Solvency II, if implemented, will effect a full revision of the insurance industry’s solvency framework and prudential regime and will impose
group level supervision mechanisms. We are unable to predict precisely how any regulations resulting from such initiatives and proposals
could affect our results of operations, financial condition and liquidity.
Formally, each member state of the European Economic Area (‘EEA’), including the Netherlands, is currently required to begin
implementing Solvency II by 31 October 2012. Discussions are ongoing to postpone the Solvency II implementation date (likely until 2014
or 2015), and a European Parliament vote on this matter is currently expected in the spring of 2012. In case such voting is further delayed
and the European Parliament does not approve a postponement of the implementation of Solvency II well in advance of 31 October 2012,
the current Solvency II framework may need to be applied effective as of 31 October 2012. Implementation of Solvency II by 31 October
2012 may be further complicated by the fact that Level 2 measures and Level 3 guidance is not expected to be finalized by such date and
the fact that it is unlikely that all member states will have their regulatory framework in place at that time. We cannot currently predict
how these uncertainties at the EU and national levels, if not resolved in a timely fashion, will impact the insurance industry generally or our
business and operations in particular.
Significant efforts towards establishing a more cohesive and streamlined European supervisory framework, including the establishment of
the European Systemic Risk Board and a European Insurance and Occupational Pensions Authority, may also affect the Group’s operations.
Risk factors continued
1 Who we are 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information
301ING Group Annual Report 2011