Basel Committee sets out additional measures to alleviate the impact of Covid-19
The Basel Committee on Banking Supervision is today setting out additional measures to alleviate the impact of Covid-19 on the global banking system. These measures support the provision of lending by banks to the real economy and provide additional operational capacity for banks and supervisors to respond to the immediate financial stability priorities. They complement the previous measures published by the Committee's oversight body, the Group of Central Bank Governors and Heads of Supervision.
Extraordinary support measures related to Covid-19
Governments in many jurisdictions have introduced extraordinary support measures to alleviate the financial and economic impact of Covid-19, including a range of government guarantee programmes for bank loans. In addition, governments, and in some cases, banks, have introduced payment moratoria. These measures are aimed at ensuring that banks can continue to lend to households and businesses and to mitigate the adverse effects of Covid-19 on the economy.
The Committee is today publishing technical clarifications to ensure that banks reflect the risk-reducing effect of these measures when calculating their regulatory capital requirements.
Expected credit loss accounting
The Committee reiterates the importance of expected credit loss (ECL) accounting frameworks as a forward-looking measure of credit losses, and expects banks to continue to apply the relevant frameworks for accounting purposes. The Committee has been actively engaged in discussions with international accounting and auditing standard-setting boards, audit firms and market regulators regarding the impact of Covid-19 on such frameworks. The Committee notes that ECL frameworks are not designed to be applied mechanistically. Banks should use the flexibility inherent in these frameworks to take account of the mitigating effect of the extraordinary support measures related to Covid-19.
In addition, the Committee has agreed to amend its transitional arrangements for the regulatory capital treatment of ECL accounting. The adjustments will provide jurisdictions with greater flexibility in deciding whether and how to phase in the impact of expected credit losses on regulatory capital.
Margin requirements for non-centrally cleared derivatives
The Committee and the International Organization of Securities Commissions have agreed to defer the final two implementation phases of the framework for margin requirements for non-centrally cleared derivatives by one year. Additional information is provided in an accompanying press release.
Global systemically important banks annual assessment
The Committee will conduct the 2020 global systemically important bank (G-SIB) assessment exercise as planned, based on end-2019 data, but has agreed not to collect the memorandum data included in the data collection template. The Committee has also decided to postpone the implementation of the revised G-SIB framework by one year, from 2021 to 2022.These adjustments will provide additional operational capacity for banks and supervisors in the current juncture.
The Committee will continue to monitor the banking and supervisory implications of Covid-19, and actively coordinate its response with the Financial Stability Board and other standard-setting bodies. Banks and supervisors must remain vigilant in light of the rapidly evolving nature of Covid-19 to ensure that the global banking system remains financially and operationally resilient. The Committee also reiterates its view that capital resources should be used by banks to support the real economy and absorb losses.
Note to editors:
The Basel Committee is the primary 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. The Committee reports to the Group of Central Bank Governors and Heads of Supervision and seeks its endorsement for major decisions. The Committee does not possess any formal supranational authority, and its decisions do not have legal force. Rather, the Committee relies on its members' commitments to achieve its mandate. The Basel Committee is chaired by Pablo Hernández de Cos, Governor of the Bank of Spain.
More information about the Basel Committee is available here.