Open letter
Finance Watch examines the progress and challenges of the Basel III framework and addresses the looming risks to global financial stability. The report urges policymakers not to withdraw from international cooperation, but to further improve the Basel III framework and safeguard against future financial crises.
How to move international banking regulation forward
Finance Watch has conducted a holistic review of the Basel III framework’s effectiveness in promoting financial stability. The report addresses key issues that have emerged in the implementation of global banking regulatory standards and offers a comprehensive assessment of areas that require improvement. The report raises alarms about the EU’s decision to dilute and delay the full implementation of global bank capital rules, echoing similar moves in the US.
Key recommendations
The study highlights several critical concerns, including the lack of clarity in defining “internationally active banks”, the increasing complexity of the Basel III framework, and the over-reliance on internal models. It also explores the practical shortcomings of macroprudential buffers and of the recovery and resolution framework, the potential for enhanced supervisory technologies, and the need for capital requirements to cover financial risks from climate change. The report includes key recommendations for global policymakers:
- Harmonise Global Implementation: Simplify the complex regulatory landscape, reduce the scope for national deviations and enforce uniform rules to ensure a level playing field for internationally active banks worldwide.
- Enhancing Bank Supervision: Strengthen bank supervision by developing global frameworks and standards for real-time prudential reporting and supervisory data access. Scale back the involvement of bank supervisors in the pre-approval of internal risk models and concentrate scarce expert resources on core supervisory tasks
- Incorporating Climate Risk: Integrate climate-related risk into banking regulations, addressing the risk of financial instability to prevent future bailouts.
Call to policymakers
Finance Watch urges European and global policymakers to reaffirm their commitment to the Basel process and re-engage in cooperative efforts to prevent a regulatory “race to the bottom.” The report emphasises the need for a renewed focus on strengthening international banking regulations to safeguard financial stability.
Read the full report to understand the challenges facing global banking regulation and the steps needed to protect financial stability.
