Global banking regulators issued a new set of principles Wednesday that aim to beef up banks’ ability to understand their overall risk exposures, and their risk management.
The Basel Committee on Banking Supervision notes that the financial crisis revealed that many banks, including global systemically important banks, were unable to aggregate risk exposures and fully identify risk concentrations, quickly and accurately. “This meant that banks’ ability to take risk decisions in a timely fashion was seriously impaired with wide-ranging consequences for the banks themselves and for the stability of the financial system as a whole,” it says.
On Wednesday, the Basel Committee published a set of principles that are intended to strengthen banks’ risk data aggregation capabilities and internal risk reporting practices. It says that global systemically important banks (G-SIBs) will be required to implement the principles in full by the beginning of 2016 at the latest, and the Committee will be monitoring their progress towards meeting this deadline.
Additionally, it recommends that national regulators apply these principles to institutions identified as domestic systemically important banks within three years. Yesterday, an official with the Office of the Superintendent of Financial Institutions (OSFI) said that it will designate the Canadian banks that are considered systemically important within the next few months.
Finally, the committee says that it also believes that the principles can be applied to a wider range of banks, in a way that is proportionate to their size, nature and complexity.
Implementation of the principles will strengthen risk management at banks, it says, which enhances their ability to cope with stress and crisis situations.
“These principles are a significant step towards improving banks’ risk management capabilities and they will also contribute to G-SIBs’ resolvability, hence reducing the potential recourse to taxpayers,” said Stefan Ingves, chairman of the Basel Committee and governor of Sweden’s Sveriges Riksbank.