Basel Committee advances work on evaluating Basel III reforms and addressing climate-related financial risks, and approves annual G-SIB assessment

Press release  | 
15 September 2022
  • Basel Committee agrees to publish an evaluation report on buffer usability and cyclicality in the Basel framework.
  • Discusses ongoing work related to measures to address climate-related financial risks.
  • Approves annual assessment exercise for global systemically important banks (G-SIBs).

The Basel Committee met virtually on 15 July and in person on 14–15 September to take stock of risks to the global banking system and related vulnerabilities, and to discuss a range of policy and supervisory initiatives.

Risks and vulnerabilities to the global banking system

The Committee discussed the implications for the global banking system of economic and financial market developments, including resurgent inflation and the deteriorating growth outlook. The discussion drew on the Committee's recent assessment of how inflation-related risks and a snapback in interest rates would affect the global banking system.

Thanks in part to the Basel III reforms, banks have generally remained resilient to date. While rising interest rates are expected to support intermediation revenue on the one hand, the risk of persistently high inflation and possible economic downturns could test banks' resilience. Banks and supervisors must therefore remain vigilant to the evolving outlook to ensure that the global banking system remains resilient.

Members also discussed medium-term structural changes and vulnerabilities affecting the banking system. This includes banks' interconnections with non-bank financial intermediation (NBFI), which have grown considerably over the past decade. A recent thematic assessment by the Committee highlighted the wide range of direct and indirect channels by which banks could be exposed to NBFI. Recent episodes of NBFI distress have highlighted the potential spillover of risks to the banking system. Members agreed to continue to monitor NBFI developments and to assess the supervisory implications. The Committee also discussed cryptoasset market developments and took note of the recent direction provided by the Group of Governors and Heads of Supervision with regards to finalising a prudential framework.

The Committee exchanged views on the supervisory implications of the use of artificial intelligence (AI) and machine learning (ML) by banks. Members discussed the challenges raised by AI/ML for banks when seeking to understand and explain the outputs from models, as well as for banks' governance and accountability arrangements, and their use of third-party AI/ML applications. The Committee agreed to continue to assess these developments and exchange supervisory best practices.

Evaluation and implementation of Basel III reforms

The Committee discussed the additional empirical analyses on buffer usability and cyclicality in the Basel framework, following the publication of an interim evaluation report last year on early lessons from the Covid-19 pandemic. The Committee agreed to publish a second evaluation report ahead of the G20 Leaders' Summit in November.

Members also discussed a more comprehensive assessment of the impact of the implemented Basel III standards over the past decade, in particular on bank resilience and systemic risk. The Committee plans to publish this third evaluation report around the end of the year.

As part of its Regulatory Consistency Assessment Programme, the Committee reviewed and approved the assessment reports on Japan's implementation of the Net Stable Funding Ratio and large exposures framework. The reports will be published soon.

Climate-related financial risks

The Committee is currently assessing and developing a suite of potential measures – spanning disclosure, supervisory and/or regulatory measures – to address climate-related financial risks to the global banking system.

Following the publication of a set of principles for the effective management and supervision of climate-related financial risks earlier this year, members discussed the Committee's ongoing work on possible approaches for addressing climate-related financial risk.

Global systemically important banks

The Committee approved the results of the annual assessment exercise for G-SIBs. The results will be submitted to the Financial Stability Board before it publishes the 2022 list of G-SIBs.

 

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 has no formal supranational authority, and its decisions have no legal force. Rather, the Committee relies on its members' commitments to achieve its mandate. The Group of Central Bank Governors and Heads of Supervision is chaired by Tiff Macklem, Governor of the Bank of Canada. 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.