Dealing with divergence
How banks can build a strategic response to the uneven implementation of Basel standards
Since the Pittsburgh G20 Summit in September 2009, regulators around the world have been committed to strengthening capital, liquidity, and leverage standards for banks. The agenda is well-known; embedded within it has been an equally strong commitment to addressing the unevenness and complexity of the global capital framework for internationally active banks.
Regulatory convergence initiatives such as Basel III were intended to pave the way for an increasingly consistent banking rulebook in most jurisdictions. This drive to increase regulatory convergence is now under pressure. Almost 10 years on from the onset of the financial crisis, and with governments keen to stimulate economic growth, there are signs of “regulatory fatigue” setting in, and several countries are questioning the need to adopt additional common global regulatory standards for the banking sector.
The European Union’s approach to Basel implementation in the last year has been instructive. Although in the past it has been prepared to amend international standards to reflect European specificities, the European Commission's November 2016 proposed review of the Capital Requirements Directive and Regulation (CRD V/CRR II) demonstrated a growing willingness to depart from an implementation of global post-crisis banking rules either in full or on time. This was particularly evident from the proposed implementation of the Basel Committee on Banking Supervision’s (BCBS’s) Fundamental Review of the Trading Book and Net Stable Funding Ratio. The time it now takes for EU institutions to pass major banking legislation alone indicates that similar timing departures are in store for the implementation of Basel III’s remaining elements (often referred to as “Basel IV”). In short, the global regulatory landscape for banks looks set to become increasingly divergent and fragmented and the implementation of Basel III is becoming a prime example.
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Inside Magazine Risk Global edition, February 2018
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