The Basel Committee on Banking Supervision: What is next now that post-crisis regulatory reform has been completed?

By: William Coen, Secretary General, Basel Committee on Banking Supervision Oct 2018

At the recent 58th WFE GA&AM in Athens, William Coen, Secretary General, Basel Committee on Banking Supervision sat down for a fireside chat with Edward Tilly, Chairman & CEO of Cboe Global Markets, and discussed the importance of global standards.  Here, William writes about the Committee's programme, and looks ahead to the future now the reform agenda has been finalised.

The Basel Committee on Banking Supervision [1] is the global standard setter for the prudential regulation of banks and provides a forum for cooperation on banking supervisory matters. Its mandate is to strengthen the regulation, supervision and practices of banks worldwide with the purpose of enhancing financial stability. When it was finalised in December 2017, the Basel III framework represented an important milestone for the post-crisis movement to reform and strengthen financial regulation. Now that its reform agenda has been finalised, what is next for the Committee?

A central element of the Basel Committee’s work programme continues to be reviewing implementation. The Committee expects full implementation of its standards by its member jurisdictions and their internationally active banks. It will therefore continue to monitor the implementation of these standards locally to ensure their timely, consistent and effective implementation, and to contribute to a level playing field among internationally active banks. For a variety of reasons, progress on the timely implementation of reforms has slowed. Full, timely and consistent implementation of minimum standards will improve the resilience of the global banking system, promote confidence in prudential ratios, and encourage a predictable and transparent regulatory environment for internationally active banks.

Another component of the Basel Committee’s work programme is to evaluate the effectiveness and impact of its post-crisis reforms, as and when they are implemented. Much of the regulatory framework is new, such as the leverage ratio, the Liquidity Coverage Ratio and the Net Stable Funding Ratio. The Committee’s minimum standards for large internationally active banks were agreed based on thorough quantitative impact testing and careful public consultation. However, since implementation has only recently started, we now need to assess the real-world impact of the standards, and this assessment, evaluation and monitoring work must be based on evidence and analysis.

This process has already started, and it is imperative that it be informed by data, research and analysis. As a matter of good public policymaking, the Basel Committee needs to assess what it has put in place over these past 10 years and to determine whether the results produced by the standards meet our original expectations. Bearing in mind the original aims of the standards, we are seeking to answer questions such as: Are those objectives being met? What are the incentives arising from the new rules? How are banks responding to the new rules – are there already behavioural changes to be observed? Have there already been changes to business models, strategies, activities? What about regulatory arbitrage? Are the letter and the spirit of the rules being circumvented? If so, what should be our response? As I noted, any type of impact analysis must be data-driven and based on empirical analysis.

A third key element of the Basel Committee’s work programme is the advancement of improvements in banking supervision and supervisory practices. The Committee’s work related to developing global prudential standards, for example, on capital adequacy and liquidity, is often thought to be the Committee’s main focus. However, its work on topics such as corporate governance, stress testing and supervisory colleges, while intangible or less quantifiable, is without doubt equally important, as are its efforts to foster better communication and cooperation among supervisors.

The financial system is complex, global and highly interconnected. This is true of all its sectors, including banking, insurance, securities markets and key market infrastructures such as payment and settlement systems. The level of coordination among those responsible for each of these sectors has increased dramatically compared with the pre-crisis period. For example, as the standard setter for the banking sector, the Basel Committee maintains regular contact with the Committee on Payments and Market Infrastructures (CPMI), Financial Stability Board (FSB), International Association of Insurance Supervisors (IAIS) and International Organization of Securities Commissions (IOSCO). These organisations often collaborate to set standards for overlapping financial sectors.

I believe this cross-border and cross-sectoral engagement has taught some important lessons to all involved. It has underscored the need to respect other jurisdictions’ supervisory and regulatory decisions in the light of national circumstances (while still meeting the minimum global standards). It has also highlighted the need to understand and respect each standard-setting body’s mandates and objectives.

Review, assessment, evaluation, monitoring: these activities now constitute a large part of the Committee’s work programme. This is a challenging but necessary task. Necessary, given the importance of global minimum standards and the need to help ensure the resilience of banks and banking systems, but challenging because, in many ways, we are trying to hit a moving target. Studies to gauge the quantitative impact of the reforms have limitations – eg they assume bank balance sheets will remain static when in fact banks will optimise the rules even before they officially come into effect. Nevertheless, on the basis of evidence and analysis, the Committee will assess whether its new or revised standards are meeting their original objectives, what the impact might be and whether the impact is as expected or there are unintended consequences. Only on the basis of empirical, data-driven analysis will the Committee consider whether adjustments are warranted.

Finally, robust global standards are a necessary element to help ensure sound and resilient banks and banking systems. However, they are wholly insufficient if not accompanied and supported by intense, high-quality bank supervision, cross-border and cross-sectoral supervisory communication and cooperation, and effective corporate governance and management at financial institutions.

[1] The Basel Committee comprises 45 members from 28 jurisdictions, consisting of central banks and authorities with formal responsibility for the supervision of banking business. Additionally, the Committee has nine observers including central banks, regional supervisory groups, international organisations and other bodies. The Committee expanded its membership in 2009 and again in 2014. Additional information is available at