by Klaas Knot

Transparency should be a guiding principle for central banks. They should be prepared to discuss their monetary policy decisions and clearly explain how their decisions safeguard price stability, and also not shy away from considering any link with public finances and the real economy. Equally, they should communicate proactively and not refrain from being transparent about the potential impact of their decisions on their balance sheets and, as such, emphasise their crucial role in absorbing losses in times of crises. Central banks around the world are going through some pretty turbulent times these days. With huge losses. And the Dutch central bank is no exception. The last time the Dutch central bank faced a similar turbulent situation was roughly a century ago, in 1931 to be exact. The turbulent times that caused significant losses back then, had to do with the gold standard. Continue reading…

The European Central Bank (ECB) and the European Banking Authority (EBA) aim to harmonise and integrate data reporting by the banking industry with the goal of improving efficiency and reducing the associated costs. To this end, the two institutions have on 18 March established the Joint Bank Reporting Committee (JBRC), which is tasked with helping to develop common definitions and standards for the data that banks are required to report for statistical, supervisory and resolution purposes. Continue reading…

by Yannis Stournaras

Central bankers have encountered significant challenges over the past 15 years: a global financial turmoil, the euro area sovereign debt crisis, a prolonged period of very-low inflation, the pandemic, and the outbreak of geopolitical crises along with a series of supply-side shocks. Each of these developments has impacted on inflation and economic activity. Each has done so in a different way. In the following remarks, I argue that the monetary policy measures adopted by the ECB during that period — including the lowering of the policy rate to negative levels for a period of 8 years — managed to support a sustained progress towards price stability, ensuring at the same time financial stability, and supporting economic welfare. That said, there were difficult trade-offs to manage. Over time, low rates and non-standard monetary policy measures may lead to excessive leverage and cause short-term dislocations in financial markets. In addition, as we have recently seen, a pivot in the monetary policy stance to combat higher inflation, can cause losses to central banks because they have to remunerate their liabilities at higher interest rates, while their assets have locked in low yields. Do these losses impair the ability of central banks to apply their preferred monetary policy rules? Do they compromise their independence? I argue they do not.
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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…

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…

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…

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…

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…

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…

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…