The economic disruption created by the Covid-19 outbreak has pushed the implementation of the final Basel III standards to the back burner. In the meantime, banks and regulators are taking advantage of the flexibility in the new regime to deal with the Covid crisis, says a new report from the Basel Committee on Banking Supervision.
The standards setter for the global banking industry published a progress report that details the adoption of the Basel III capital adequacy reforms, which were developed in the wake of the global financial crisis. The report was prepared in advance of the G20 meeting taking place later this month from Nov. 21–22.
The report noted that while various countries have continued to make progress on implementing the Basel III standards, efforts have also been somewhat disrupted by the pandemic.
For instance, the final rules for some standards haven’t been adopted in certain jurisdictions and the implementation deadlines for certain measures — including funding, leverage and counterparty credit risk reforms — have been delayed due to the pandemic.
In the meantime, regulators have taken advantage of the flexibility in aspects of the Basel III regime that have been adopted in their responses to Covid-19, the report noted.
Among other things, regulators have taken steps to ease capital and liquidity requirements on banks to support their ability to continue providing credit and liquidity to the real economy.
In general, these adaptations have enabled the global banking system to remain stable in the face of the pandemic.
“Overall, further progress has been made since last year in implementing the Basel III standards… In addition, banks have continued to build capital and liquidity buffers while reducing their leverage,” the report said. “More recent data, which incorporate the impact of Covid-19, suggest that banks’ capital and liquidity ratios have generally remained stable.”
Notwithstanding the Covid-19 disruption, the Basel Committee reiterated its expectation that the Basel III standards will be fully implemented under the revised deadlines adopted in the wake of the pandemic.
The report also noted that the committee will “continue to monitor the regulatory and supervisory measures taken by its members in response to Covid-19, including the use of flexibility and consistency of these measures with the Basel framework.”
Additionally, the committee said that it is developing plans to restart implementation assessments that were halted due to the pandemic, with the goal of completing its reviews by the end of 2022.