The outlook for global bank regulation is neutral as regulators are expected to be primarily focused on implementing existing requirements in the year ahead \u2014 yet, in North America, the regulatory climate is poised to slack off, says Fitch Ratings.<\/p>\n
In a report released Tuesday, the rating agency said it is forecasting a “relative lull” in global rulemaking for 2025 as banking regulators around the world focus on adopting the final Basel III requirements, among other pending regulations.<\/p>\n
The Basel Committee on Banking Supervision’s work in the coming year “will focus on implementing the outstanding Basel III standards in full and consistently, and as soon as possible,” the report said.<\/p>\n
Additionally, Fitch said it believes that there’s a “lack of consensus, and perhaps regulatory fatigue, related to issuing revised liquidity risk and interest rate risk-related standards, with global authorities more likely instead to concentrate on the effective implementation of existing rules and tight supervision.”<\/p>\n
It also expects regulators to “remain vigilant of shocks that may amplify existing credit, market risk transmission channels, and endanger financial stability.”<\/p>\n
If these sorts of risks start to emerge, regulators could start easing capital buffers or other macroprudential constraints, Fitch said.<\/p>\n
“Major jurisdictions phasing-in the final Basel III rules may further reduce appetite for higher-risk assets,” the rating agency suggested.<\/p>\n
At the same time, global banking supervisors will be focused on an array of other risks, including governance, climate, financial crime and cyber risks, along with the contagion risks posed by banks’ links to other parts of the financial industry, such as investment funds, private equity, broker-dealers and insurers, the report suggested.<\/p>\n
While the global outlook is neutral, Fitch said it generally expects looser regulation in North America, led by a shift in the U.S. that will accompany the incoming government.<\/p>\n
“Deregulation will be a key theme, given likely changes in key regulatory personnel \u2014 which may also lead to aspects of the final Basel III endgame proposals being canned, and a more radical reshaping of banking and capital markets rules,” it said.<\/p>\n
“We expect a more relaxed tone for financial and markets innovation, which could boost institutional and retail participation \u2014 translating into higher trading volumes and revenues in more esoteric asset classes including private credit, crypto and digital assets, with clearer rules on the latter spurring further tokenization of financial instruments and less liquid asset classes.”<\/p>\n
However, Fitch warned that “any significant decline in minimum capital requirements accompanied by a reduction in supervision intensity will be credit negative in the medium term.”<\/p>\n
It’s also expected that U.S. regulators will take a more permissive approach to potential merger and acquisition activity in the banking sector, making the environment more conducive to dealmaking.<\/p>\n
As for climate-related risks, Fitch said that “although climate-related physical risks will remain an area of supervisory focus,” it expects that personnel changes at the major U.S. regulatory agencies “could dial down the tempo and intensity of supervision in this area.”<\/p>\n
In Canada, Fitch said it expects the Office of the Superintendent of Financial Institutions (OSFI) will “continue to focus and respond to the risks posed by normalized interest rates, with a focus on real estate risks (variable rate residential mortgage loans and commercial real estate loan portfolios), wholesale credit risks, funding and liquidity risks, and integrity and security vulnerabilities (including risks from foreign interference).”<\/p>\n
As for non-financial risks, it noted that OSFI has “highlighted operational resilience and risks related to artificial intelligence (AI) as having risen in significance, so expect more scrutiny on third-party, cyber, technology and integrity and security risks, including fraud and anti-money laundering.”<\/p>\n
“The availability of open-source GenAI tools have also simplified threat actors\u2019 ability to undertake fraudulent and criminal activities. Governance gaps at institutions will also be a focus,” Fitch said.<\/p>\n
Outside of North America, the outlook for Europe and Asia in 2025 is neutral, along with the emerging markets in Latin America, the Middle East and Africa.<\/p>\n
Emerging Europe is the only region where Fitch expects tighter regulation in the year ahead.<\/p>\n
“The management of real estate-related and household risks is likely to raise capital needs via macroprudential risk buffers and capital denominator increases,” the rating said.<\/p>\n","protected":false},"excerpt":{"rendered":"
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