Jurisdictions with biggest banks need to speed Basel III implementation, Basel chief says

11 February 2020 12:44 by Neil Roland

Jurisdictions with the largest banks need to move more quickly to effect overdue Basel III standards and make sure they are consistent with each other, said Pablo Hernandez de Cos, head of the Basel Committee on Banking Supervision.

"We are seeing increasing signs of delay," he said recently.

Although Hernandez de Cos didn't single out any jurisdictions, the US trails Japan and pre-Brexit EU overall in implementing the five standards flagged in his speech.

The jurisdictions' delays, some of which are two years past Basel deadlines, can be traced to "relentless lobbying" by banks seeking "fine-tuning" of Basel, he said. Fading memories of the financial crisis have also contributed to the lags, he said, as has the "fallacy of 'this time is different.'"

"It tests our will to persevere with the implementation of post-crisis reforms," said Hernandez de Cos, who also heads Spain's central bank.

He added: "And we convince ourselves that some reforms may no longer be needed or warranted, or even that rolling back reforms may be the key to achieving other short-term economic objectives."

Basel is a Switzerland-based global authority consisting of central banks and financial regulators. It sets non-binding minimum banking standards for jurisdictions worldwide.

Basel III sought to tighten capital and liquidity standards in the wake of the financial crisis.

— Financial stability —

Hernandez de Cos said lagging Basel III implementation could weaken global financial stability and the provision of credit to the economy. Inconsistent rules adopted by jurisdictions could result in market fragmentation and cross-border arbitrage.

This market fragmentation could result in a "race to the bottom" in rules and bank supervision, he said. Banks also might find few bars to overstating their capital and liquidity ratios.

Only about 70 percent of all Basel member jurisdictions have implemented in a timely fashion the five standards he cited.

— Five standards —

Those standards include the net stable funding ratio, which seeks to prevent banks from relying too heavily on volatile, short-term borrowings, and a supervision framework for measuring and controlling large exposures.

The other standards noted are a revised securitization framework; a standardized approach for measuring counterparty credit risk; and capital requirements for banks' exposures to clearinghouses.

While the US, EU and Japan have put some of these standards into effect, none of the jurisdictions have implemented all of them, according to Basel's semi-annual progress report last October.

Among these jurisdictions, according to Basel's rating system, the EU and Japan are tied with the most points overall for the five standards.

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