Basel Committee agrees to consult on targeted revisions to standards on cryptoasset and interest rate risk in the banking book and to take steps to address window-dressing in relation to the G-SIB framework

Press release  | 
07 December 2023
  • Basel Committee agrees to consult on targeted revisions to the standard on cryptoassets and a recalibration of the interest rate risk in the banking book standard.
  • Decides to develop potential measures to address window-dressing behaviour by some banks in the context of the framework for global systemically important banks.
  • Discusses risk management considerations associated with the transition to a low carbon economy and related physical risks.

The Basel Committee on Banking Supervision met virtually on 5 and 7 December to discuss a range of policy and supervisory initiatives.

Cryptoassets

The Committee took stock of its review of various elements of the prudential standard for banks' exposures to cryptoassets published in December 2022. It agreed to consult on potential targeted revisions related to the criteria for stablecoins to receive a preferential "Group 1b" regulatory treatment. The Committee will also consult on various technical amendments to help promote a consistent understanding of the standard. The Committee concluded that cryptoassets that use permissionless blockchains create risks that cannot be sufficiently mitigated at present and therefore agreed to retain the existing treatment for such cryptoassets. The consultation paper will be published this month.

The Committee also reviewed the risks arising from banks providing cryptoasset custody services. Such services raise various operational risks for banks, which reinforces the importance of full implementation of the Principles for operational resilience and those for the sound management of operational risk. The Committee will continue to monitor the evolution of banks' cryptoasset custody activities and, taking account of market developments, will consider whether any additional work may be needed.

Interest rate risk in the banking book

The Committee agreed to consult on a set of targeted adjustments to its standard on interest rate risk in the banking book (IRRBB). The adjustments reflect the outcome of a review that was initiated as part of the Committee's 2023–24 work programme published in December 2022. It is therefore separate to the Committee's follow-up work to the 2023 banking turmoil. The consultation proposes updates to the interest rate shocks specified in the IRRBB standard to take account of interest rate movements since the standard was first published in April 2016. The consultation paper will be published this month.

Global systemically important banks and window dressing

The Committee discussed a range of empirical studies that highlight "window-dressing" behaviour by some banks in the context of the framework for global systemically important banks (G-SIBs). Such regulatory arbitrage behaviour seeks to temporarily reduce banks' perceived risk profile around the reference dates used for the reporting and public disclosure of the G-SIB scores.

As noted previously by the Committee, window-dressing by banks is unacceptable. Such behaviour undermines the intended policy objectives of the Committee's standards and risks disrupting the operations of financial markets. To that end, the Committee agreed to consult in 2024 on potential policy options aimed at reducing window-dressing behaviour. To help inform this work, the Committee will collect higher frequency data items.

Climate-related financial risks

As part of its holistic approach to addressing climate-related financial risks, the Committee discussed the development of potential risk management considerations associated with the transition to a low carbon economy and related physical risks, and will continue to consider these issues over the coming months. These would complement previous initiatives by the Committee, including the publication of supervisory principles, responses to frequently asked questions, and the recently proposed disclosure framework.

Implementation of Basel III reforms

As part of its Regulatory Consistency Assessment Programme, the Committee reviewed and approved the assessment reports on the implementation of the Net Stable Funding Ratio and large exposures framework by Mexico and Switzerland. The Committee also approved the follow up implementation assessment report of the Liquidity Coverage Ratio by Mexico. The reports will be published this month.

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.