The global banking system entered the Covid-19 crisis with ample capital and liquidity, thanks to the Basel III reforms implemented after the GFC. A robust regulatory framework underpins confidence in banks' soundness and helps to maintain a level playing field internationally.
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.
Global cooperation and coordination among central banks
and supervisory authorities has been key to maintaining global financial
stability during the Covid-19 pandemic and beyond. We, as GHOS,
affirmed today our commitment to preserving a global level playing field
and to avoiding regulatory fragmentation.
François Villeroy de Galhau, Chairman of the GHOS and Governor of the Bank of France
Today's decisions by GHOS will help further reinforce
the ability of banks to absorb shocks and maintain lending to
creditworthy households and businesses during the pandemic by providing
further certainty regarding the usability of the Basel III capital and
liquidity buffers. The Committee will continue to build on its long
track record of collaboratively and constructively strengthening the
regulation, supervision and practices of banks worldwide with the
purpose of enhancing financial stability.
Pablo Hernández de Cos, Chairman of the Basel Committee and Governor of the Bank of Spain
© BIS - Bank for International Settlements
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