CEPS: Why finalising Basel III is good for the European banking sector
08 June 2021
Finalising the 2017 agreement will contribute to a banking system that is more resilient and in a better shape to support the real economy. It is possibly the final milestone in the post-crisis reform agenda, and represents a crucial step towards a level playing field for banks internationally.
Basel III is an internationally agreed set of
measures to strengthen the regulation, supervision and risk management
of banks. Finalising the 2017 agreement will contribute to a banking
system that is more resilient and in a better shape to support the real
economy. It is possibly the final milestone in the post-crisis reform
agenda, and represents a crucial step towards a level playing field for
banks internationally. The EU banking sector is particularly sensitive
to the conclusion of this process, as solvency ratios will be more
affected there than in other jurisdictions.
This paper shows the advantages of adopting a
multi-metrics approach to capital measurement, simultaneously using
risk-weighted criteria for capital adequacy, the establishment of an
output (risk-weighted assets) floor and the deployment of a minimum
leverage ratio, as defined in the Basel III finalisation. The
complementary use of those metrics brings a far more robust approach to
capital measurement since each one may constitute a binding restriction
for different banks. Consistent implementation of Basel standards at the
global level is fundamental to a sound banking system. It is therefore
of the utmost importance that the legislative implementation of the
Basel III finalisation in the EU is timely and in full compliance with
internationally agreed standard
Full publication
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