More than 220 central bankers and banking supervisors representing over 90 different jurisdictions met on 24–25 April, 2024 in Basel for the 23rd International Conference of Banking Supervisors (ICBS).
The ICBS included a program to mark the 50th year of the Basel Committee on Banking Supervision.
Delegates reflected on the Committee’s achievements, the outlook for banks and supervisors, as well as the implications for the Committee’s work in the foreseeable future.
Delegates voiced support for the Committee’s updated Core principles for effective banking supervision, the international standard for sound prudential regulation and supervision of banks and banking systems.
The Committee initiated a review of the Core Principles in 2022, with the aim of reflecting supervisory and regulatory developments, structural changes impacting the banking system and lessons learned since the update back in the year 2012.
The updated standard reflects changes to:
- embed learnings for mitigating financial risks and to strengthen the macroprudential aspects of supervision;
- promote operational resilience;
- reinforce corporate governance and risk management practices; and
- address new and emerging risks, including the digitalisation of finance and climate-related financial risks.
The Core Principles are said to be “universally” applicable and accommodate a range of banking systems and a “broad spectrum” of banks. The Core Principles are used by supervisors “to assess the effectiveness of their regulatory and supervisory frameworks.”
They are used by the International Monetary Fund (IMF) and World Bank as part of the Financial Sector Assessment Program (FSAP) to evaluate “the effectiveness of countries’ banking supervisory systems and practices.”
The revised standard was developed by a task force “comprised of both Committee and non-Committee member jurisdictions, as well as the IMF and World Bank.”
Delegates emphasized the importance of effective supervision and bank risk management practices, and committed “to fully implementing the revised standard.”
Pablo Hernández de Cos, Chair of the Basel Committee, said:
“This year’s ICBS was a landmark event for central bankers and banking supervisors …. Participants also acknowledged the benefits of the Committee’s Basel III standards….”
Preceding the ICBS, the Basel Committee reportedly convened on 23 April, 2024.
The Committee:
- Approved for publication a consultation paper on guidelines for banks’ counterparty credit risk management.
- Approved to publish an analytical report on the digitalisation of finance.
The Basel Committee is the primary global standard setter for the prudential regulation of banks and “provides a forum for cooperation on banking supervisory matters.”
Its mandate is to “strengthen the regulation, supervision and practices of banks worldwide with the purpose of enhancing financial stability.”
The Committee has “no formal supranational authority, and its decisions have no legal force.”
In an interview with CI earlier this month, Tracy Moore, Director of Thought Leadership and Regulatory Affairs at Fenergo, discussed the impending changes that Basel III may bring forward.
Big US banks see Basel III as punitive rules that will increase the cost of banking for everyone. At recent hearings in Congress, bank executives unanimously expressed their concerns that these rules are negative for the US banking industry.
Tracy Moore noted:
“Basel III Endgame is a global agreement set forward by the Basel Committee on Banking Supervision in response to the widespread financial crisis experienced in 2007. The agreed-upon measures are designed to bolster the resilience of the US banking systems and will largely impact the regulatory capital frameworks for banks with assets exceeding $100 billion, encompassing approximately 36 banks. Basel III is a comprehensive process; its global three-year phase-in period is scheduled to commence in January 2025.”
She further explained:
“This means that US banks may encounter more stringent capital requirements, potentially affecting their capacity to engage in certain capital markets activities, such as proprietary trading. Also, the impact extends beyond large banks, as smaller banks with substantial trading operations will also fall under the purview of the new risk framework. As such, financial institutions will need to revamp their protocols, emphasizing the significance of adopting digital and streamlined solutions to support meeting regulatory requirements.”
She added:
“Basel III is poised to reshape banks’ operations and strategies. With stricter capital requirements, we may see that banks tighten the belt on their lending structures or increase interest rates – effects which will impact both businesses and consumers. Market liquidity and risk management is another area that we will see an impact as a result of the rule; Basel III looks to ensure that banks maintain sufficient liquidity cushions to withstand short-term and long-term liquidity stress events.”