BIS General Manager on Importance of Finalizing Basel III Reforms

He offered his observations on how international cooperation can support policies to strengthen resilience. In many respects, building resilience is first and foremost a domestic task. However, certain challenges call for a global response and require international cooperation within a consistent multilateral framework. Managing the risks associated with financial openness is a prime example. The financial system is truly global. Many financial institutions are active around the globe, facilitating funding and managing financial risks across many jurisdictions. As the dominant global currency, the U.S. dollar is the currency of choice not only for around half of all trade, but also for roughly half of global cross-border bank claims and more than 60% of central banks’ foreign exchange assets. Efforts to build resilience globally have to take these features into account. Therefore, “Completing Basel III is especially important, given the role banks play in the global financial system. This is no time to weaken safeguards or add another source of uncertainty that would hinder the necessary adjustments in the financial industry.”

The annual report, among other factors, reviews recent banking, insurance, and asset management sector developments and discusses how banks are adjusting their business models in response to the key financial sector trends, including the regulatory reforms that are about to be completed. It elaborates on changing US dollar funding patterns and their implications for bank business models and systemic risk. The annual report also discusses the challenges posed by the evolving fintech sector. In this context, the report highlights that “a pressing question for regulators is how to ensure prudent risk management.” Mounting concerns about cyber-security underscore the potential risks of technology-enhanced financial services. Due diligence of possibly multiple internal and external service providers may be needed to ensure the integrity of IT systems. Furthermore, competition between banks and fintech platforms may require approaches that maintain a cross-sectoral level playing field (same risk, same rules) to reduce regulatory arbitrage, while preserving incentives for technological innovation, such as via regulatory "sandboxes."

Related Links

BIS Annual Report

Speech of Jaime Caruana (PDF)

Keywords: International, BIS, Annual Report, Basel III, Regulatory Reforms, FinTech