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A meeting of the world’s top bank supervisors and central bankers to consider a contentious reforms package has now been postponed, the Basel Committee on Banking Supervision said.
The long-awaited meeting was expected to sign off a series of reforms intended to make it harder for banks to avoid the higher Basel III capital requirements that were put in place after the financial crisis.
The meeting has been delayed because key parts of the reforms are still not agreed. The committee works by consensus and has no formal enforcement powers against countries that fail to implement its reforms. A refrain throughout its history has been that “nothing is agreed until everything is agreed”.
The main sticking point between supervisors in the US and their European counterparts is the so-called output floor that limits the extent to which banks can use their own models to calculate the riskiness of their lending. The floor in effect prevents them from using risk estimates that are too far below the outputs of a standardised model devised by regulators.
Michael Lever, head of prudential regulation at AFME, which represents the biggest banks and other wholesale markets participants, welcomed the decision to do further work on the proposals.
“It is important to take the time to create a framework that is capable of accurately measuring the risks that banks are assuming and can also accommodate structural differences between banking markets in different jurisdictions,” he said.
The delay is a blow to the Basel committee, which pledged to have the reform package signed off by the end of 2016. The process is likely to last until at least March, according to Basel insiders, which means the committee will be dealing with a new US administration. There are questions about the direction financial regulation will take under Donald Trump, US president-elect, who has said he wants to roll back some areas of the rules introduced since the crisis.
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