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Basel Committee agrees to consult on targeted revisions to standards on cryptoasset and interest rate risk in the banking book

20 December 2023
Knowledge Base

The Basel Committee on Banking Supervision met virtually  to discuss a range of policy and supervisory initiatives. The Committee took stock of its review of various elements of the prudential standard for banks’ exposures to cryptoassets published in December 2022. It agreed to consult on potential targeted revisions related to the criteria for stablecoins to receive a preferential “Group 1b” regulatory treatment. The Committee will also consult on various technical amendments to help promote a consistent understanding of the standard. The Committee concluded that cryptoassets that use permissionless blockchains create risks that cannot be sufficiently mitigated at present and therefore agreed to retain the existing treatment for such cryptoassets. The consultation paper will be published this month. Continue reading…

The adoption of POR and PSMOR

28 November 2023
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This article provides information on the Basel Committee’s assessment of the adoption of the Principles for Operational Resilience and the revised Principles for the Sound Management of Operational Risk. The Committee believes the information provided may be useful for both supervisors and banks in their day-to-day activities. This document is for informational purposes only and does not constitute new supervisory guidance or expectations. The Committee assessed the adoption of the Principles for Operational Resilience (POR) and the revised Principles for the Sound Management of Operational Risk (PSMOR, or collectively, “the Principles”) published in March 2021. The assessment is meant to promote the adequate and timely adoption of the Principles. The assessment found that the effectiveness and maturity of POR and PSMOR adoption vary across banks and jurisdictions. Continue reading…

Leveraging Gen AI for Basel III End Game Compliance

21 November 2023
Knowledge Base

by Ajay Katara

Basel III end game is the latest update to the US Capital requirements which will bring about sweeping changes to the existing capital requirements in place for the US banks. Under the existing provisions there are two approaches which apply to US banks. The standardised approach applies to all banking organisations (other than community banks) and advanced approaches apply to category 1 and category 2 US banks, and they must also compute Risk Weighted Assets (RWA) under the standardised too. The US regulators have proposed July 2025 for compliance with new requirements with a three-year transition period ending in Jun 2028. The new regulation will bring about a lot of changes and will fundamentally apply to banks with asset sizes greater than USD 100 Mn with specific changes applying to banks designated between category 1 to category IV. Continue reading…

Annual Report highlights FSB’s work to assess and address vulnerabilities in the global financial system

25 October 2023
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The Financial Stability Board (FSB) has recently published its latest Annual Report. The report, which was delivered to G20 Finance Ministers and Central Bank Governors ahead of their meeting in Marrakesh, describes the FSB’s work to promote global financial stability. The report looks back at the banking turmoil in March 2023. It notes that swift and decisive actions were taken by the relevant authorities and that the already implemented Basel III reforms helped shield the global banking sector and real economy from a more severe banking crisis. The FSB’s review concludes that these events demonstrate the soundness of the international resolution framework but identifies several areas to enhance its implementation. Continue reading…

Basel Committee reports on Basel III implementation progress

10 October 2023
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The Basel Committee on Banking Supervision has on 3 October issued its progress update on the adoption of the Basel Framework. The update summary and monitoring dashboard set out the jurisdictional adoption status of the Basel III standards as of end-September 2023. They cover the Basel III post-crisis reforms published by the Committee in December 2017 and the finalised minimum capital requirements for market risk of January 2019. The implementation date for these reforms was 1 January 2023, as announced by the Group of Central Bank Governors and Heads of Supervision (GHOS) in March 2020. Continue reading…

About ‘Banks Going Bankrupt’

06 October 2023
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by Klaas Knot

Despite strong buffers, despite supervision, banks can go bankrupt. That’s all part of a healthy, dynamic, competitive banking sector. And in fact, at the current juncture, with interest rates having gone up – while justified to keep inflation in check – the risk of accidents is increasing. As the Americans say ‘Whenever the Fed hits the brakes, someone goes through the windshield.’ The problem is of course that a bank failure may threaten financial stability. Because of contagion, because banks are interconnected, and because of the vital role banks play in the economy. So one of the lessons from the Global Financial Crisis is that we – that is central banks, supervisors and the banks themselves – should be thoroughly prepared for a failure, if one happens. So that the bank can be laid to rest in an orderly way, and essential public functions can continue. Continue reading…

Monetary and fiscal policy-mix addressing the disease of inflation

22 September 2023
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Francois Villeroy de Galhau

Let me start with good news about a favourite Eurofi topic: banking regulation and Basel 3. I say it as BIS Chair and former chair of GHOS: we had in Monday an important GHOS meeting in Basel, and we unanimously welcomed the decisive progress made this year in the implementation of Basel 3. By 2025, all jurisdictions – including Europe and – yes – the US – should have implemented it in a broad compliance with the standards. I know each banking industry, on both sides of the Atlantic, tends to consider that the other side has undue advantages. It’s simply not right, and our motto is now straightforward: let us now close this page, and implement the European compromise, no less and no more. No less as some banks would perhaps still dream of, and no more as some theoreticians of regulation would perhaps imagine. And we should now turn to the priority learned from the banking turmoil: “strengthening supervisory effectiveness” [*1] rather than focusing on further regulation. Let me now turn to my theme which is the policy mix to fight our main economic disease: inflation. Continue reading…

Neil Esho: Stick to the Core Principles

18 September 2023
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On 13 September, Neil Esho, Secretary General of the Basel Committee on Banking Supervision, at the Eurofi Financial Forum 2023, Santiago de Compostela. When asked how he went bankrupt, Mike Campbell, a Scottish war veteran who features in Hemingway’s novel, The Sun Also Rises, responded: “two ways: gradually and then suddenly”. This description of financial failure – clearly not new – is also an apt description that sums up many an episode of banking distress. This includes the failure of a number of US regional banks earlier this year, and the merger of two large Swiss G-SIBs. Continue reading…

Central banks at the crossroads

12 September 2023
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by Luiz Pereira da Silva,

Central banks, and central bankers, stand at a crossroads. They face not one, but five major forks in the road. In line with their mandate and in addition to their known achievements, central banks, in the 21st century need to reflect carefully on how the new challenges could affect their role. I will list five of these forks: (1) the re-emergence of inflation; (2) climate change; (3) inequality; (4) digital financial innovation; and (5) artificial intelligence. As you know, modern central banks have been successful because they have been capable of strengthening their analytical thinking when facing challenges in the past, balancing risks properly and choosing the best path, even if that path looked challenging. Now, the many consequential issues that we face imply that central banks will have to carefully identify and analyse the paths they mean to tread. Continue reading…

Basel Committee finds the United States largely compliant with its Net Stable Funding Ratio standard

21 July 2023
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The United States’ implementation of the Net Stable Funding Ratio (NSFR) standard and large exposures (LEX) framework are largely compliant with the global standards set by the Basel Committee on Banking Supervision, according to reports published 12 July (NSFR, LEX). The Basel Committee’s assessment reports on the NSFR and LEX form part of its RCAP, a series of reports on the implementation of Basel standards by member jurisdictions of the Basel Committee. Continue reading…