The Basel Committee on Banking Supervision (BCBS) and the World Bank published the results of a global survey among bank supervisors and regulators to facilitate better understanding of the proportionality practices in various jurisdictions. The report summarizes the responses from 90 authorities, with a broad distribution across geographical regions and income groups. This report on survey results references 11 standards, guidelines, and principles issued by the Basel Committee; these are Basel I, Basel II, Basel III, leverage ratio, liquidity coverage ratio, net stable funding ratio, large exposures, interest rate risk in the banking book, prudential treatment of assets, corporate governance, and recovery and resolution planning. The results show that proportionate implementation is practiced widely, across geographic regions and income groups.
Although over 80% of the respondent jurisdictions implement proportionate approaches to at least one subset of their financial systems, at the level of individual standards, proportionate implementation is in a range of about 10% to 40%. Pillar 1, corporate governance, and large exposures are implemented in a proportionate manner in over 25% of respondent jurisdictions, net stable funding ratio (NSFR), Pillar 2 supervisory review and evaluation process (SREP) and internal capital adequacy assessment program (ICAAP) are implemented proportionately by less than 15% of respondent jurisdictions, and the other Basel Committee standards included in the survey are implemented proportionately by 15% to 25% of respondent jurisdictions). Most standards included in the survey have been implemented either fully or proportionately by over 50% of respondent jurisdictions, yet some of the standards have not been implemented by most jurisdictions. Non-implementation is materially more prevalent than implementation for the NSFR. The prevalence of non-implementation by respondent jurisdictions is higher than that for proportionate implementation for all standards, except for Pillar 1 of capital adequacy framework and corporate governance.
In addition to taking stock of details on the different approaches to proportionate and full implementation of these standards, the survey enquires about the motivation for proportional and full implementation, any associated challenges and unintended outcomes, and factors that could help various jurisdictions to achieve an effective proportionate implementation. The survey scope extends beyond commercial banks, encompassing the regulation and supervision of cooperative banks, development banks, and non-bank deposit taking institutions. The following are additional key takeaways from the analysis of survey responses—
- Proportionate implementation is practiced widely, across geographic regions and income groups. The use of proportionality is growing, as judged by respondents reporting future plans for proportionality. This is a work-in-progress but is also challenging for several jurisdictions.
- Proportionality is acknowledged by respondents as promoting banking stability, reducing unnecessary regulatory burden and compliance costs, and making effective use of scarce supervisory resources. Consistent with this, a significant proportion of the respondents (67%) are planning to implement or revise their proportionate approaches. Respondents have also expressed a clear preference for implementing a limited set of the Basel Committee standards.
- However, challenges remain for jurisdictions that have adopted or are considering adopting proportionality. These challenges are faced during the design of proportionate approach with regard to these activities: how to define the tiering criteria, how to maintain a level playing field, and how to avoid opportunities for regulatory arbitrage.
- Challenges are also faced after proportionality is implemented with respect to these tasks: how to ensure financial positions are still comparable across banks and how to achieve net reduction in compliance costs and stress on supervisory resources and constraints.
- The survey results show that implementation is motivated by factors other than risk profile or systemic relevance, in some cases. For example, full or conservative sets are implemented by jurisdictions seeking to obtain or retain correspondent banking relationships and meet the expectation of host-jurisdiction supervisors or rating agencies.
Keywords: International, Banking, Proportionality, Systemic Risk, World Bank, Basel, Regulatory Capital, Liquidity Risk, IRRBB, Large Exposures, Corporate Governance, Resolution Framework, BCBS
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