24 October 2019

BIS' Hernández de Cos: Post-Basel III: time for evaluation

Pablo Hernández de Cos, Chairman of the Basel Committee on Banking Supervision and Governor of the Bank of Spain, describes this key component of BCBS‘s current work programme related to evaluating post-crisis reforms.

BCBS‘sevaluation work programme is motivated by three broad necessities:

• First, it is an imperative for standard-setting bodies - and indeed, any policymaking body - to evaluate the impact and effectiveness of any measure or reform it introduces. This is an integral part of the policymaking process. It enhances the intellectual rigour of standard setting by providing an ex post appraisal of the degree of success in attaining a policy objective, which complements the range of ex ante assessments conducted during the design stage. And such evaluation strengthens the accountability and credibility of policymakers by providing a transparent judgment on the impact of their reforms.
• Second, the evaluation of post-crisis reforms is not being conducted in a vacuum. BCBS will actively encourage and seek input from a broad range of stakeholders. Indeed, this is consistent with BCBS‘sapproach to designing standards, which was recently described as "one of the most procedurally sophisticated" processes.
• Third, the work on evaluating post-crisis reforms is agnostic to the outcome. BCBS‘ssole requirement is that any inputs to the evaluation be based on rigorous empirical analyses. As a result, Mr Pablo Hernández de Cos remains open-minded about BCBS‘sfindings and any potential policy responses. Indeed, there may be as much a case to pursue additional measures or to address regulatory gaps as there may be a need to fine-tune aspects of BCBS‘spost-crisis framework.

The Basel Committee approved a work programme for evaluating its post-crisis reforms towards the end of 2017. The programme covers three types of evaluations:

• Whether individual reforms, or a subset of reforms, have achieved their intended objectives. For example, to what extent has a specific reform delivered its intended outcome of, say, enhancing risk sensitivity, or have a subset of reforms been effective in reducing excessive variability of banks' risk-weighted assets (RWAs)?
• An evaluation of the interaction and coherence across different reforms. For example, are different measures mutually reinforcing or conflicting? Do different measures treat similar risks in a similar way? In principle, these could also include cross-sectoral interactions, ie interactions between the Committee's reforms and other post-crisis reforms.
• An assessment of any broader impact of the Committee's reforms, in aggregate or for a subset of reforms. For example, are there any structural impacts arising from the reforms? To what extent are these impacts desirable or undesirable?

In addition, Mr Pablo Hernández de Cos comments on one aspect that affects the macro- and microprudential policy authorities. And he briefly comments on the issue of proportionality, which is the focus of another session and is another topical issue on the Basel Committee's agenda.

Mr Pablo Hernández de Cos concludes: “In conclusion, the Basel Committee will be devoting a substantive part of its agenda over the next few years to carefully evaluating the impact and effectiveness of its post-crisis reforms. This work will be grounded in rigorous empirical analysis, and will require the full implementation of our standards in order to arrive at an accurate assessment. We will be actively seeking stakeholders' views to support us in this work, and I am certain that our high-level meeting this week will serve as an important input.”

Full speech on BIS

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