Basel Committee finalises principles for effective management and supervision of climate-related financial risks; Progresses work on specifying cryptoasset prudential treatment and issuing a second consultation paper;..
Finalises review of the treatment of cross-border exposures within the European Banking Union on the G-SIB methodology.
The Basel Committee met on 27 May and approved a finalised set of
principles for the effective management and supervision of
climate-related financial risks. It also progressed its work on
specifying a prudential treatment of cryptoassets and issuing a second
consultation paper, and agreed on a way forward to reflect developments
in the European banking union (EBU) on the assessment methodology for
global systemically important banks (G-SIBs). In addition, the Committee
is continuing to assess risks to and vulnerabilities of the global
banking system, including those ensuing from the conflict in Ukraine.
Climate-related financial risks
The Committee agreed to a finalised set of principles for the
effective management and supervision of climate-related financial risks.
This follows the consultation by
the Committee on these principles last year. The principles, which will
be published in the coming weeks, seek to promote a principles-based
approach to improving risk management and supervisory practices to
mitigate climate-related financial risks. They are designed such that
they can be adapted to a diverse range of banking systems in a
proportional manner.
The publication of these principles forms part of the Committee's
broader assessment of potential measures – spanning disclosure,
supervisory and regulatory measures – to address climate-related
financial risks to the global banking system. The Committee will provide
an update on its work across these dimensions in due course. It will
continue to collaborate with other global forums on climate-related
financial risk initiatives.
Cryptoassets
The Committee progressed its work towards issuing a second
consultation paper on the prudential treatment of banks' cryptoasset
exposures, following its initial consultation last
year. Recent developments have further highlighted the importance of
having a global minimum prudential framework to mitigate risks from
cryptoassets. Building on the feedback received by external
stakeholders, the Committee plans to publish another consultation paper
over the coming month, with a view to finalising the prudential
treatment around the end of this year.
G-SIB assessment methodology
The Committee has completed its targeted review
of the treatment of cross-border exposures within the EBU on the
methodology for G-SIBs. The Committee recognises the progress that has
been made in the development of the EBU. It agreed to give recognition
in the G-SIB framework to this progress through the existing methodology, which allows for adjustments to be made according to supervisory judgment.
Under the agreement, a parallel set of G-SIB scores will be
calculated for EBU-headquartered G-SIBs and used to adjust their bucket
allocations. The parallel scores recognise 66% of the score reduction
that would result from treating intra-EBU exposures as domestic
exposures under the G-SIB scoring methodology. The Committee's agreement
will not affect the classification of any banks as G-SIBs or the scores
or bucket allocations of banks outside of the EBU.
In due course, the EU authorities will publish a more detailed
description of the methodology and requirements for relevant
EBU-headquartered banks to publish the cross-jurisdictional indicators
needed to calculate the parallel set of scores.
Risks and vulnerabilities to the global banking system
Following the outbreak of the Ukraine conflict, the Committee held a
series of meetings to discuss risks and vulnerabilities to the global
banking system. Banks' direct financial exposures to Russia, Ukraine and
Belarus are relatively limited and manageable. In addition, banks are
focusing on their operational resilience while processing sanctions and
dealing with an increase in cyber threats. However, there are in
principle several potential channels by which the banking system could
be affected by the ongoing conflict. These include indirect, second- and
third-round, effects stemming from the conflict, such as developments
in commodity markets and exposures to financial and non-financial
institutions that are affected by the conflict. The risks stemming from a
worsening macroeconomic outlook, rising inflation and interest rates in
a number of markets, and broad-based asset repricing also warrant close
monitoring. Against this backdrop, the Committee noted the importance
for banks and supervisors to continue to closely monitor, assess and
mitigate these risks and vulnerabilities.
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