Basel oversight group marks end of Basel III, supports measured drawdowns of reserves during stress periods

Governors and Heads of Supervision commit to ongoing coordinated approach to mitigate Covid-19 risks to the global banking system and endorse future direction of Basel Committee work

The Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision, has today endorsed a coordinated approach to mitigating Covid-19 risks to the global banking system.

The global banking system entered the Covid-19 crisis with ample capital and liquidity, thanks to the Basel III reforms implemented after the Great Financial Crisis (GFC). A robust regulatory framework underpins confidence in banks’ soundness and helps to maintain a level playing field internationally.

The timely measures pursued by the Committee at the start of the pandemic and the GHOS’s agreement to revise the implementation timeline for outstanding Basel III standards added to the unprecedented range of fiscal and monetary support measures that have buttressed banks’ resilience thus far.

The Basel III capital and liquidity buffers help banks to absorb shocks and keep lending to creditworthy households and businesses. Using capital and liquidity resources in this way should take priority at present. GHOS members strongly support the Committee’s repeated guidance that a measured drawdown of these buffers is appropriate in the current period of stress and until the Covid-19 crisis is over. After the crisis, supervisors will provide banks with sufficient time to rebuild their buffers, taking account of economic, market and bank-specific conditions.

As the Covid-19 crisis continues to unfold, the vulnerabilities and risks to the global banking system will evolve. Against that backdrop, GHOS members tasked the Basel Committee with continuing to pursue a coordinated approach in responding to the crisis, to preserve a global level playing field and to avoid regulatory fragmentation. The approach comprises the following elements:

    • an ongoing monitoring and assessment of vulnerabilities and risks to the global banking system from Covid-19, and information-sharing of supervisory insights during the crisis;
    • encouraging the use of flexibility embedded in the Basel framework, where relevant;
    • monitoring the implementation of temporary adjustments to mitigate current risks to the banking system, to ensure they are consistent with the objectives of the Basel framework and are unwound in a timely manner; and,
    • where necessary and prudent, adopting additional global measures in a coordinated manner.

The GHOS members also unanimously reiterated their expectation for the full, timely and consistent implementation of all aspects of the Basel III framework. Doing so will help to lock in the benefits of these standards to ensure that banks can withstand future crises.

In this regard, the GHOS members agreed to mark, with the present agreement on the Basel III framework, a clear end to the post-GFC Basel III policy agenda. Any further potential adjustments to Basel III will be limited in nature and consistent with the Committee’s evaluation work. Henceforth, the Committee’s Basel III-related work will focus on (i) monitoring the implementation, timeliness and consistency of these standards through its Regulatory Consistency Assessment Programme; and (ii) completing an evidence-based evaluation of the effectiveness of these reforms, also taking into consideration the lessons from the Covid-19 crisis.

The GHOS also endorsed a series of recommendations from the Basel Committee to focus its policy and supervisory agenda on future risks to the global banking system and its vulnerabilities. The recommendations followed a strategic review conducted by the Committee over the past year. The Committee’s future work will focus on new and emerging topics including structural trends in the banking sector, the ongoing digitalisation of finance and climate-related financial risk.

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