May 11, 2017
Comments on Proposed Framework for Post-Implementation Evaluationof the Effects of the G20 Financial Regulatory Reforms

Japanese Bankers Association
We, the Japanese Bankers Association (JBA), would like to express our gratitude
for this opportunity to comment on Proposed Framework for Post-Implementation
Evaluation of the Effects of the G20 Financial Regulatory Reforms issued on April 11,
2017 by the Financial Stability Board (“FSB”). We respectfully expect that thefollowing comments will contribute to your further discussion.
[General Comments]
We are willing to cooperate with the evaluation of the effects of the regulatory
reforms using an internationally unified approach as proposed in the consultation
document, since such an evaluation would be meaningful in this transitional stage ofshifting from the post-crisis stage of developing reforms to the stage of implementing
and monitoring these reforms.
Capital and liquidity frameworks under Basel III, margin and other regulations
have already been implemented; however, a number of reforms are expected to beimplemented going forward. In such a situation, it may take time to have acomprehensive view on the effects of those regulatory reforms. Given this, the scope of
this evaluation should cover broader reforms, including not only those reforms already
implemented but also those upcoming reforms that may have significant effects on thefinancial markets and the real economy.
We understand that the FSB will evolve its evaluation framework which has justbeen initiated in the process of its continuing evaluation of effects. We respectfully
request the FSB to share details of, for example, what kind of framework or data is used
to evaluate, and what analysis outcome was obtained in the form of a public
consultation, with stakeholders including authorities and related industries.
Those reforms, which have unintended adverse consequences or which have notdemonstrated intended consequences should be reviewed and revised as necessary1through an initiative led by the FSB.
Although this framework is a very important topic, the consultation period
provided is only one month, which is very short and not sufficient to invite meaningful
feedback from various stakeholders.. We expect the FSB to establish an appropriate
public consultation process for collecting opinions (e.g., establish a comment collection
system or “opinion box” to invite comments at all times, not only during theconsultation period) and ensure continued dialogue with stakeholders in order to obtaincooperation from them for improving the evaluation framework going forward.
[Specific Comments]<<Responses to the questions>>
Questions 1 to 3 (Main elements of the framework)
1. Do you have any comments or suggestions on the main elements of the evaluation
framework (e.g. are there other elements that should be considered for inclusion in theframework)?
2. Are the objectives and scope of the framework appropriately set out?
3. Would you suggest any refinements or additions to the concepts and terms?
(Responses)
 We basically support the objectives and the concept underlying the evaluation ofeffects as stated in the consultation document.
 The scope of evaluation, however, should not be limited to implemented reforms,
and should include those reforms to be implemented that may trigger changes inbehavior of market participants and users in anticipation of the implementation andthus may have impacts on the financial markets and real economy. An approach
would, for example, be to capture effects of reforms to be implemented throughcarrying out a qualitative survey.
Questions 4 to 6 (Challenges of evaluations)
4. Do you have comments or suggestions on how to address the challenges ofidentifying and measuring interactions between reforms and how to isolate the effectsof reforms and their interactions from other factors?
5. Do you have views on how to think about intended versus unintended (and possiblyundesirable) consequences or how to frame the trade-off between different (and2possibly competing) objectives?
6. Do you have comments or suggestions on how to address the challenges of defining
and measuring social benefits and costs, especially when they do not follow directlyfrom private benefits and costs?
(Responses)
 With regard to “evaluation of overall effects” specified in page 7 of the consultation
document, it is difficult to evaluate whether effects have met this evaluation
criterion because the objectives set by G20 financial regulatory reforms (i.e.,achieve strong, sustainable and balanced growth) which are criteria for evaluating
effects are still high-level and ambiguous. In addition, currently observable data
includes, for example, costs for regulatory compliance efforts incurred byindividual financial institutions, the movement in transaction volumes observed inmarkets, and a change in market participants. The work that can be carried out
based on such data would be limited to, among other things, (i) the identificationand summarization of key changes occurred after the implementation of reforms,and (ii) screening of reforms that could be a cause. We therefore believe that it isessential to have numerous continued discussions between the private and public
sectors with regard to what evaluation criteria specifically mean and a practicalassessment methodology and develop common understanding.
 For “measuring benefits” set out in page 7 of the consultation document, the issue
would be how to measure benefits of respective reform if there are several reforms
with the same objective. (For example, how to measure benefits arising from thecentral clearing requirements and benefits arising from the leverage ratio in thelight of the objective to limit excessive derivatives transactions.) It is howeverdifficult to objectively isolate and quantify the degree of effects (e.g., a reform has
reduced the probability of financial crisis by xx%). Since this model-based
evaluation method has certain limitations, a well-balanced evaluation framework
should be established by taking into account the result of qualitative survey.
 For “prioritization of evaluations” described in page 9 of the consultation document,
decisions need to be made on the basis of materiality which is the relative
importance of the reform. To this end, it would be necessary to constantly monitor
and change the priority because the degree of changes both in an event, which is abasis to evaluate the materiality, and by an impact resulting from the factors otherthan regulation differs depending on a situation. If, for example, a significant
3change occurs in the “liquidity of a sovereign bond secondary market,” it would benecessary to investigate the magnitude of effects arising from reforms and thosefrom a change in the level of interest rates, in order to make a robust analysis.
Questions 7-9 (Evaluation approaches)
7. Do you have comments or suggestions on the proposed evaluation approaches (i.e. on
the empirical models and methods to analyze effects)?
8. Do you have suggestions on approaches to ensure the quality and replicability ofresults?
9. Do you have views on lessons – in terms of methods and approaches – that can belearned from evaluations in other policy areas, or from existing national or regional
evaluation frameworks?
(Responses)
 Effective measures in addressing the question “Attribution” provided in page 10 of
the consultation document would be to summarize logical consequences of reforms.
For example, Liquidity Coverage Ratio would provide an incentive to hold morehigh quality liquid assets (HQLAs), while Leverage Ratio would prompt to limit
HQLA holdings. It would also be considered effective to have continued dialogues
with financial institutions about the impact on their business plan resulting from theregulation and the outlook of market conditions.
 We agree with the importance of the notion of “Heterogeneity” described in page
10 of the consultation document. Given the objective of “enhancing the stabilityand robustness of a global financial system,” the size, market share and otherfactors of financial institutions should be taken into account in terms of prioritizing
the work or improving efficiency. For example, it would be considered useful toselect the reform, which has the same regulatory requirements but cause differenteffects, observed in jurisdictions where global systemically important financialinstitutions (G-SIFIs) undertake their core businesses, or the reform, which hasdifferent regulatory requirements across jurisdictions in spite of the existence of theinternational agreement.
 We believe that it is necessary to combine both the deductive and inductiveapproaches, rather than to pre-define their weights, because, at this moment,
evaluation criteria are not clear and the degree of effects is difficult to quantify. It
would be beneficial, for the deductive approach, to develop hypotheses and carry4

out data validation, and, for the inductive approach, to presume factors fromobserved changes (e.g., market transaction volumes, volatility and the number andthe classes of market participants) and the assessment of effects on the objectives.
The evaluation of reform effects has just been initiated and no specific benchmark
has yet to be defined. It is considered effective to monitor data and facts witheliminating bias and to analyze a business plan developed by financial institutions
so that effects that have not yet been materialized as outcomes can be captured.
 In terms of “Evaluation tools” discussed in page 12 of the consultation document,
we agree with the method of Partial/General Equilibrium Analysis since thismethod is considered theoretically appropriate in terms of identifying thecomprehensive influence from the reform. Furthermore, from practical perspective,
it is unknown whether the method of Partial/General Equilibrium is useful or notsince it has characteristics of limited data availability and difficulty in the empiricalapproach (i.e., it is empirically impossible to cease some of the regulations toobserve the effects). It is therefore desirable to continue the study for this analysis
with taking into account that the conclusion by this analysis merely represents theresult based on hypotheses.
 As stated in “Transparency” in page 15 of the consultation document, we welcome
the proposal to have an opportunity to seek public comments on the outcome of theevaluations by the FSB. Reviewing whether the outcomes are appropriate fromvarious viewpoints would enhance the reliability and accountability of the outcomeof the evaluations.
For “Follow-up” noted in page 15 of the consultation document, if, as a result of theevaluation, it is identified that a reform needs to be reviewed because the intended
objective is not reached or unintended consequences have occurred, such a reform
should be promptly revised. The consultation document states that “results ofevaluation reports will be sent to the relevant body,” but does not specify that“policy proposal will be made based on the outcomes of evaluation.” If, however,there are adverse consequences on the real economy, appropriate revisions toreforms should be immediately made at the initiative of G20. We respectfully
request the FSB to play a proactive role in such a process.

5Question 11 (Engagement with stakeholders)
11. How can the FSB and SSBs best engage with external stakeholders (e.g. financialservices providers, various kinds of end-users, and academics) in their evaluation work
(going beyond public consultations)?
(Responses)
 The evaluation of reform effects needs to be undertaken by smoothly collaboratingwith various stakeholders including private financial institutions and end users. In
doing so, cooperation of stakeholders can more easily be obtained by, for example,
avoiding duplication of exercises with the Regulatory Consistency Assessment
Programme (“RCAP”) undertaken by the Basel Committee on Banking Supervision(“BCBS”) and those assessment conducted by international bodies such as theInternational Monetary Fund (“IMF”).
 The public and private sectors need to have deeper discussions about any abstract
descriptions in the consultation document. For example, it is necessary for relevant
parties to promote mutual understanding about the meaning of the intended
objectives set by G20 which are the basis of evaluation criteria and the evaluation
standards for Attribution and Heterogeneity.
Question 12 (Prioritisation of topics)
12. Do you have comments or suggestions on which individual reforms or interacting
set(s) of reforms should be initially considered for evaluation as a matter of priority?
(Responses)
 The useful approach for the evaluation of effects would be to prioritize thosereforms that may have adverse consequences, regardless of those already
implemented or to be implemented. An approach to identify the reform that may
have adverse consequences would be to identify overlapping reforms with the same
objective. For example, a transaction may be subject to a regulation of a certain
jurisdiction based on the attribute of a counterparty (such as, US Person or
Canadian Person), or may be subject to a regulation of another jurisdictiondepending on a physical location (e.g., a location where a transaction is executed)
or the nature of a transaction (a transaction denominated in a certain currency).
Furthermore, among the reforms expected to be implemented in the future, one ofthe objectives of output floors and the leverage ratio requirements is to serve as
back-stop of the risk-based capital requirements. While, one of the objectives of6large exposure framework and TLAC holdings frameworks is to prevent thecontagion of risks. These are the examples of the regulations which have the sameobjective.
 There are also regulations that have adverse effects. For example, Leverage ratio
may discourage compliance with Liquidity Coverage Ratio that requires to holdhigh-liquid assets and liabilities with a low run-off ratio, such as deposits. The
leverage ratio requirements may also prevent the facilitation of the use of central
counterparties.
Such an evaluation of the consistency between financial regulations should be ledby an international body such as the FSB.

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