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Basel Committee oversight body marks end to post-global financial crisis banking reforms.

The Group of Central Bank Governors and Heads of Supervision (GHOS) said in a statement on November 30 that any changes to the Basel III framework will be limited and reflect the Basel Committee’s evaluation work.

Going forward the Committee’s Basel III work will focus on monitoring the implementation, timeliness and consistency of the standards through its Regulatory Consistency Assessment Programme, completing an evidence-based evaluation of the effectiveness of the reforms, while taking into account lessons learned from the Covid-19 crisis.

Another plank of the Committee’s work, which is endorsed by the GHOS, will be to study future risks to the global banking system and its vulnerabilities. This includes looking into trends such as the digitalisation of finance and climate-related financial risk.

There will be no more fundamental changes to the framework, such as around capital and liquidity buffers

This is a strong signal that there will be no more fundamental changes to the framework, such as around capital and liquidity buffers. The announcement does not come as a surprise to the banking industry, which was not anticipating any further significant reforms.

Industry sources believe there could be more emphasis on measures such as the countercyclical capital buffer following the deep recessions caused by government actions to stop the spread of the pandemic. There could also eventually be some tweaks to risk weighted assets and risk models to reflect climate risks, for example. The focus on digitisation and climate change does suggest more emphasis on operational risk.

Level playing field

Meanwhile, GHOS reaffirmed its commitment to preserving a global level playing field and to avoiding regulatory fragmentation.

“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,” said Pablo Hernández de Cos, chairman of the Basel Committee and governor of the Bank of Spain.

The Basel Committee temporarily relaxed some capital measures and delayed the remaining Basel III implementation deadlines by one year to give banks more flexibility with their capital buffers to support the economy during the crisis.

In a related move, the GHOS asked the Committee to continue its coordinated approach in responding to the crisis, to preserve a global level playing field and to avoid regulatory fragmentation.This involves monitoring for vulnerabilities in the financial system and encouraging the use of Basel framework’s flexibility where needed.

Once the crisis has passed, it was reiterated that supervisors will provide banks with sufficient time to rebuild their buffers, taking into account economic, market and bank-specific conditions.

This article first appeared in The Banker's sister publication Global Risk Regulator.

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