Basel III: Finalising post-crisis reform

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The Basel III: Finalising post-crisis reform standards, sometimes called Basel 3.1 or Basel IV, are changes to international standards for bank capital requirements that were agreed by the Basel Committee on Banking Supervision (BCBS) in 2017 and are due for implementation in January 2023. They amend the international banking standards known as the Basel Accords. [1]

Contents

The Basel Committee describes these changes as completing the Basel III reforms, published in 2010–11, [2] and calls them "finalised Basel III post-crisis reforms". [3] The UK Government calls the changes "Basel 3.1". [4] Others have referred to them as Basel IV; however, the secretary general of Basel Committee said in a 2016 speech he did not view the changes as substantial enough to describe them in such a way. [5]

Critics of the reforms, in particular those from the banking industry, argue that the standards lead to a significant increase in capital requirements, when the stated intention of the Basel Committee was for the changes to the standards to be capital neutral in terms of their aggregate impact, although not necessarily neutral for individual banks. [6]

History

Basel III is an international regulatory framework for banks, developed by the Basel Committee on Banking Supervision (BCBS) in response to the financial crisis of 2007-08. It contains various rules on capital and liquidity requirements for banks. The 2017 reforms complement the initial Basel III. This set of rules was adopted on 7 December 2017 with an intended implementation date of January 2022 (including a phase-in period for the output floor until 2027). [7] [8] As the BCBS does not have the power to issue legally binding regulation, the Basel standards have to be implemented by national authorities. [9]

The secretary general of the Basel Committee said, in a 2016 speech, that he did not believe the changes are substantial enough to warrant a new Roman numeral. [5] The Basel Committee refer to only three Basel Accords. [10]

In response to the COVID-19 pandemic, the BCBS agreed to delay implementation by one year until January 2023. [11]

Requirements

The BCBS press release summarised the reforms as follows: [12]

These reforms will take effect from January 2023, with exception of the output floor, which is phased in, taking full effect only on 1 January 2028. [13]

Capital impact

The standards are expected to increase capital requirements for British banks alone by £50bn. [14] The average Common Equity Tier 1 (CET1) capital ratio for major European banks is estimated to fall by 0.9%, with the biggest impact on banks in Sweden and Denmark of 2.5%–3%. [15] The December 2020 assessment by the European Banking Authority (EBA) of the capital impact of implementing Basel 3.1 in the EU is an increase of 18.5% in minimum required capital with the impact for some national banking sectors forecast to be much higher (based on figures as of 31st December 2019). [16]

Implementation

The Basel Committee set 1 January 2023 as the (revised) date for implementation of the new rules. However, in October 2021 the European Commission proposed an implementation date of 1 January 2025. [17] In March 2022, the UK's Bank of England also announced that they will propose an implementation date of January 2025. [18]

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References

  1. ↑ Davies, Howard (2017-12-21). "The Last Basel Round? by Howard Davies". Project Syndicate. Retrieved 2017-12-27.
  2. ↑ "Regulators look ahead to 'Basel 4'". ICAEW. Retrieved 18 May 2014.
  3. ↑ "Sixteenth progress report on adoption of the Basel regulatory framework". BCBS. Retrieved 31 May 2019.
  4. ↑ "Prudential standards in the Financial Services Bill Policy statement" (PDF). UK Government. 2020-03-11. Retrieved 2020-03-12.
  5. 1 2 Coen, William (2016-04-05). "The global policy reform agenda: completing the job".{{cite journal}}: Cite journal requires |journal= (help)
  6. ↑ Davies, Howard (2017-12-21). "The Last Basel Round? by Howard Davies". Project Syndicate. Retrieved 2017-12-27.
  7. ↑ "Finalising Basel III - in brief" (PDF). BCBS. Retrieved 16 July 2019.
  8. ↑ "Basel III Website". BCBS. Retrieved 16 July 2019.
  9. ↑ "Policy development and implementation review". www.bis.org. 30 October 2015. Retrieved 8 April 2019.
  10. ↑ "History of the Basel Committee". 2014-10-09.{{cite journal}}: Cite journal requires |journal= (help)
  11. ↑ "Governors and Heads of Supervision announce deferral of Basel III implementation to increase operational capacity of banks and supervisors to respond to Covid-19". 2020-03-27.{{cite journal}}: Cite journal requires |journal= (help)
  12. ↑ "Governors and Heads of Supervision finalise Basel III reforms". 2017-12-07.{{cite journal}}: Cite journal requires |journal= (help)
  13. ↑ (PDF) https://www.bis.org/bcbs/basel3/b3_trans_arr_1728.pdf.{{cite web}}: Missing or empty |title= (help)
  14. ↑ "KPMG: UK Banks Facing New £50bn Capital Hole as 'Basel IV' Emerges". International Business Times. September 12, 2013. Retrieved 18 May 2014.
  15. ↑ Nicolaus, David (2017-12-19). "Basel IV – capital and strategic planning". KPMG. Retrieved 2018-01-10.
  16. ↑ (PDF) https://www.eba.europa.eu/sites/default/documents/files/document_library/Publications/Reports/2020/961423/Basel%20III%20reforms%20-%202019Q4%20update%20and%20Covid%20impact.pdf.{{cite web}}: Missing or empty |title= (help)
  17. ↑ Implementing Basel 4 - European Commission proposal for CRR3, KPMG , October 2021
  18. ↑ Implementation of Basel standards, Bank of England, 21 March 2022

Bibliography

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