The new Basel Capital Accord (Basel II) of the Basel Committee on Banking Supervision was adopted into national law in Liechtenstein on the basis of the 2006/48/EC and 2006/49/EC directives of the European Parliament and the Council. The national discretion available and further information on the Basel II Accord can be found on the website of the Liechtenstein Financial Market Authority at www.fma-li.li.
The LLB Group has applied the new capital adequacy requirements since 1 January 2008. Basel II seeks to align the previous relatively general regulatory capital requirements much more closely to the actual risks that banks face. In calculating capital requirements, the regulations provide a range of simple and advanced approaches to measuring credit and operational risks.
At the LLB Group the standard approach is applied. Depending on the risk content, these categories contain clearly specified risk weights, although the possibility exists of considering external ratings. In order to reduce the scope of the calculation basis for capital requirements, certain collateral assets can be taken into account.
This is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external causes. To calculate operational risk, the LLB Group employs a basic indicator approach. The capital required here amounts to 15 percent of gross income (a three-year average).
The approaches for measuring capital requirements to cover market risk, which were added to extend Basel I in 1996, are also included in the new framework accord. The LLB Group uses the «De Minimis» approach.
Basis for calculating capital requirements
Capital requirements and tier capital are determined on the basis of the IFRS consolidated financial statement, whereby non-realised gains are deducted from core capital.
On the whole, the capital requirements at the LLB Group have decreased. As per 31 December 2009, the tier 1 ratio amounted to 13.7 percent; as per the end of December 2008, this stood at 13.5 percent.
Further information can be found in Capital adequacy requirements (Pillar I).