Basel Committee agrees to revisions to Basel Core Principles, consults on addressing window-dressing in the G-SIB framework and reaffirms expectation about Basel III implementation
- Basel Committee approves revisions to Core principles for effective banking supervision.
- Decides to consult on potential measures to address window-dressing behaviour by some banks in the context of the framework for global systemically important banks.
- Reaffirms expectation that all aspects of Basel III will be implemented in full, consistently and as soon as possible.
The Basel Committee on Banking Supervision met on 28–29 February 2024 in Madrid to take stock of recent market developments and risks to the global banking system, and to discuss a range of policy and supervisory initiatives.
Risks and vulnerabilities to the global banking system
The Committee discussed the outlook for the global banking system in the light of recent economic and financial market developments. It discussed risks to banks from sectors facing headwinds, including segments of commercial real estate. Members also discussed banks' interconnections with non-bank financial intermediaries, including the growing role of private credit. Banks and supervisors need to remain vigilant to emerging risks in these areas.
Basel Core Principles
The Committee discussed the comments received to its consultation on revisions to the Core principles for effective banking supervision (Basel Core Principles). Drawing on the inputs received from a wide range of stakeholders, the Committee approved the final revisions to the Core Principles, which draw on supervisory insights and structural changes to the banking system since the previous update in 2012. The final standard will be published following the International Conference of Banking Supervisors on 24–25 April 2024.
Global systemically important banks and window-dressing
Building on the discussion at its previous meeting, the Committee looked at a range of empirical analyses 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 systemic footprint 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 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 on potential measures aimed at reducing window-dressing behaviour. The consultation paper, and an accompanying working paper summarising the empirical analyses, will be published next month. The Committee also agreed to publish a working paper on an assessment of the G-SIB score dynamics over the past decade.
Climate-related financial risks
As part of its holistic approach to addressing climate-related financial risks, the Committee discussed the role of scenario analysis in assessing the resilience of banks' business models, strategies and overall risk profile to a range of plausible climate-related pathways. Members noted that the field of scenario analysis is dynamic, with practices expected to evolve rapidly as climate science advances. Building on its existing supervisory principles, the Committee agreed to publish a discussion paper on the use of climate scenario analysis by banks and supervisors to help inform potential future work in this area. The discussion paper will be published in the coming months.
Implementation of Basel III reforms
The Committee took stock of the implementation status of the outstanding Basel III standards, which were finalised in 2017. Committee members have continued to make good progress with implementation, though it remains uneven. Members unanimously reaffirmed their expectation of implementing all aspects of the Basel III framework in full, consistently and as soon as possible. Members also approved a workplan for the jurisdictional assessments of the implementation of these standards as part of the Committee's Regulatory Consistency Assessment Programme.
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.