Basel Committee to Review Banking Developments
Posted by Colin Lambert. Last updated: March 27, 2023
The Basel Committee on Banking Supervision has added a study of risks and vulnerabilities in the banking system to its work schedule, after meeting virtually on 14 March and in-person on 22–23 March in Hong Kong.
At the meetings, the committee discussed the outlook for the global banking system in the light of recent economic and financial market developments, observing that these events have further highlighted the importance of a resilient global banking system underpinned by effective bank governance and risk management practices, robust regulatory standards, and strong supervision supported by proactive cross-border cooperation.
“Since the Great Financial Crisis, the Basel III reforms have helped the global banking system absorb different shocks and continue to lend to creditworthy households and businesses,” it states. “Since 2011, banks’ leverage ratio has increased from 3.5% to 6.5%, while their risk-based Common Equity Tier 1 ratio has improved from 7% to 13%. Their liquidity risk profile has also strengthened during this period, with banks’ average Liquidity Coverage Ratio and Net Stable Funding Ratio standing at 140% and 125%, respectively.”
The committee says that banks and supervisors must be vigilant to the evolving outlook to ensure that the global banking system is resilient. It adds it will continue to closely monitor bank and market developments and assess the financial stability risks of higher interest rates to the global banking system. In addition, the committee agreed to take stock of the regulatory and supervisory implications stemming from recent events, with a view to learn lessons.
More generally, committee members unanimously reaffirmed their expectation of implementing all aspects of the Basel III framework in a full and consistent manner, and as soon as possible, in order to further enhance the resilience of the global banking system and provide a regulatory level playing field for internationally active banks.
Following the publication of a prudential treatment for banks’ exposures to cryptoassets last year, the Basel Committee approved a workplan to continue to assess and mitigate risks from these assets to the global banking system. This includes a set of targeted reviews of the prudential treatment, including with regard to the treatment of permissionless blockchains and the eligibility criteria for “Group 1” stablecoins. The committee says it will also continue to monitor banks’ cryptoasset activities and exposures, including their role as potential issuers of stablecoins and tokenised deposits, custodians of cryptoassets and interconnections with other nodes of the cryptoasset ecosystem.