Basel Committee's reforms helped cushion the impact of Covid-19 shock on banks
- New report gives a preliminary assessment of the impact of implemented Basel reforms during the pandemic as part of a broader evaluation of their effectiveness.
- Higher quality capital and liquidity levels required by the reforms helped banks absorb the significant impact of Covid-19 shock.
- The banking system would have faced greater stress during this period had the reforms not been adopted and implemented.
Regulatory reforms implemented since the financial crisis significantly helped banks absorb the shock caused by the Covid-19 pandemic, the Basel Committee on Banking Supervision said on Tuesday in an interim report assessing the effectiveness of post-crisis reforms.
The report, Early lessons from the Covid-19 pandemic on the Basel reforms, indicates that the banking system would have faced greater stress during this period had the Basel III reforms not been adopted, and in the absence of extraordinary support measures taken by public authorities to mitigate the impact of the pandemic.
Covid-19 serves as a reminder of the importance of having a resilient banking system underpinned by global and prudent standards.
The Basel III standards implemented to date proved critical in ensuring banks remained resilient and supported the real economy through an unprecedented shock. This lesson should strengthen our resolve to finish the job and implement the remaining Basel III reforms.
Overall, the report finds that the increased quality and higher levels of capital and liquidity in the global banking system since the adoption of the Basel III reforms helped banks absorb the significant impact of the Covid-19 shock, suggesting that the reforms have achieved their broad objective of strengthening the resilience of the banking system. It also notes that throughout the pandemic, banks continued to lend and provide other critical services.
The interim report is part of the Committee's broader work programme to evaluate its post-global financial crisis reforms. It highlights a number of areas that the Committee intends to continue to monitor.
The report's empirical analysis will be updated as additional data regarding the impact of the pandemic become available. Any updates will be included in a comprehensive evaluation report covering the Basel reforms implemented over the past decade, which the Committee plans to publish in 2022.
The findings will also be reflected in the Financial Stability Board's interim report on financial stability lessons learnt from the Covid-19 pandemic, which is to be submitted to G20 Finance Ministers and Central Bank Governors.