Basel guidelines aim to detect weak banks

Regulators are updating the guidelines in light of the changes that have taken place in global financial markets and on the global regulatory landscape since the financial crisis.

According to the committee, key changes to the guidelines include greater emphasis on the need for early intervention and the use of recovery and resolution tools, and updating communication policies for distressed banks.

It also provides further guidance for improving supervisory processes, such as incorporating macroprudential assessments, stress testing and business model analysis, and reinforcing the importance of sound corporate governance at banks.

The guidelines also highlight issues that emerged during the crisis including the risks posed liquidity shortfalls, excessive concentrations, misaligned compensation and inadequate risk management.

Finally, the guidelines expand provisions dealing with information-sharing and cooperation among authorities.

“Weak banks are a worldwide phenomenon, and early identification and intervention by supervisors is critical in preventing an escalation of problems,” said Stefan Ingves, chairman of the Basel Committee and governor of Sveriges Riksbank. “The revised guidelines provide an important toolkit for supervisory authorities to deal with weak banks in a timely and effective manner.”

Comments are due by September 19.