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The current crisis underscores the importance of a resilient banking system and a prudent regulatory framework. The measures taken by the Committee at the onset of the pandemic have helped mitigate some of the short-term financial stability risks. All members reaffirmed their expectation of full, timely and consistent implementation of all Basel III standards based on the revised timeline endorsed by the Group of Governors and Heads of Supervision.
The pandemic has entered a new phase. The impact and response vary across jurisdictions and the global economic outlook remains uncertain. Banks and supervisors must remain vigilant to the risks and vulnerabilities stemming from the pandemic to ensure that the global banking system remains financially and operationally resilient.
The Basel III framework includes capital buffers that sit above minimum requirements. These buffers have two objectives. First, to ensure that banks absorb losses in times of stress without breaching their minimum requirements. Second, to help maintain the flow of credit to the real economy in a downturn by lending to creditworthy businesses and households. Using capital resources to support the real economy and absorb losses should take priority at present.
The Basel III framework also requires banks to hold a buffer of high-quality liquid assets. This buffer helps banks absorb liquidity-related shocks and maintain the flow of lending to the real economy.
The Committee views a measured drawdown of banks' Basel III buffers to meet these objectives as both anticipated and appropriate in the current period of stress. Supervisors will provide banks sufficient time to restore buffers taking account of economic and market conditions and individual bank circumstances.
The Committee reviewed the domestic regulatory and supervisory measures taken by members in response to the crisis and agreed to submit a stocktake of these measures to the Financial Stability Board (FSB) for their report to the G20 Finance Ministers and Central Bank Governors virtual meeting in July 2020.
The Committee will continue to monitor the vulnerabilities and risks to the global banking system from Covid-19 and will pursue additional measures if needed. It will also continue to coordinate the work on cross-sectoral financial issues with the FSB and other standard-setting bodies.
In addition to its discussion related to Covid-19, the Committee approved:
Members took stock of banks' progress on benchmark rate reforms and discussed potential regulatory implications stemming from banks' transition to alternative reference rates. The Committee places high priority on this issue and expects all banks to be adequately prepared to meet the transition timeline.
The Committee also reviewed the responses received to its discussion paper on the prudential treatment for crypto-assets and approved a workplan for the next phase of the work, with a view to future consultation.