Saturday, 20 April 2024

Basel Committee revises core principles and reaffirms Basel III implementation

5 min read

The Basel Committee on Banking Supervision met in Madrid to assess market developments and risks to the global banking system, as well as policy and supervisory initiatives.

Risks and vulnerabilities to the global banking system

The committee discussed the outlook for the global banking system in the light of recent economic and financial market developments. It discussed risks to banks from sectors facing headwinds, including segments of commercial real estate. Members also discussed banks’ interconnections with non-bank financial intermediaries, including the growing role of private credit. Banks and supervisors need to remain vigilant to emerging risks in these areas.

Basel Core Principles

The committee discussed the comments received to its consultation on revisions to the Core principles for effective banking supervision (Basel Core Principles). Drawing on the inputs received from a wide range of stakeholders, the committee approved the final revisions to the Core Principles, which draw on supervisory insights and structural changes to the banking system since the previous update in 2012. The final standard will be published following the International Conference of Banking Supervisors on 24–25 April 2024.

Global systemically important banks and window-dressing

Building on the discussion at its previous meeting, the committee looked at a range of empirical analyses that highlight window-dressing behaviour by some banks in the context of the framework for global systemically important banks (G-SIBs). Such regulatory arbitrage behaviour seeks to temporarily reduce banks’ perceived systemic footprint around the reference dates used for the reporting and public disclosure of the G-SIB scores.

As noted previously by the committee, window-dressing by banks undermines the intended policy objectives of the committee’s standards and risks disrupting the operations of financial markets. To that end, the committee agreed to consult on potential measures aimed at reducing window-dressing behaviour. The consultation paper, and an accompanying working paper summarising the empirical analyses, will be published next month. The committee also agreed to publish a working paper on an assessment of the G-SIB score dynamics over the past decade.

Climate-related financial risks

As part of its holistic approach to addressing climate-related financial risks, the committee discussed the role of scenario analysis in assessing the resilience of banks’ business models, strategies and overall risk profile to a range of plausible climate-related pathways. Members noted that the field of scenario analysis is dynamic, with practices expected to evolve rapidly as climate science advances. Building on its existing supervisory principles, the committee agreed to publish a discussion paper on the use of climate scenario analysis by banks and supervisors to help inform potential future work in this area. The discussion paper will be published in the coming months.

Implementation of Basel III reforms

The committee took stock of the implementation status of the outstanding Basel III standards, which were finalised in 2017. Committee members have continued to make good progress with implementation, though it remains uneven. Members unanimously reaffirmed their expectation of implementing all aspects of the Basel III framework in full, consistently and as soon as possible. Members also approved a workplan for the jurisdictional assessments of the implementation of these standards as part of the Committee’s Regulatory Consistency Assessment Programme.

Re-disseminated by The Asian Banker

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