The Bank for International Settlements (BIS) set out the 2022 work program for its Innovation Hub while the annual report of the Irving Fisher Committee on Central Bank Statistics (IFC) sets out progress on the key workstreams during 2021. The Basel Committee on Banking Supervision also updated the webpage on reporting instructions for global systemically important bank (G-SIB) assessment. Other recent developments include publication, by BIS, of papers on regulation of virtual banking, expected and unexpected credit losses, and small business lending.
Key highlights of the aforementioned publications follow:
- The work program of the BIS Innovation Hub for 2022 is focused on expanding the portfolio of explorations seeking to develop new technological public goods for central banks and on the launch of new projects in the areas of regulatory and supervisory technology, cyber security, central bank digital currencies (CBDCs), next-generation payments systems and Decentralized Finance (DeFi), sustainable finance. One of the projects in the Singapore Hub is called Project Ellipse, which builds a platform to help financial regulators to digitally extract, query, and analyze a large quantity of data from diverse sources, incorporating artificial intelligence and machine learning. The code is expected to be published as open source. In a new phase, named Project Viridis, the platform will be tested for supervision of climate-related financial risk and sustainability metrics.
- The IFC Annual Report sets out the work done on its key workstreams in 2021. The workstreams include central banking statistics after COVID-19, big data, micro data, data governance, fintech, and sustainable finance. In 2022, IFC will further its work in these areas and a number of events will be organized in this context, with the support of the central banks of Italy, Portugal, and South Africa as well as the ECB. An important focus will be on the IFC contribution to a possible new Data Gaps Initiative (DGI) envisaged by the G20 to improve data availability and provision, especially in the areas related to environmental, fintech, and data access/sharing issues. IFC will also organize its Biennial Conference in August 2022. This will provide the statistical community with an important opportunity to analyze the post-pandemic landscape for official statistics and to shape the agenda and future priorities for central banks.
- BCBS recently updated the page on the information used in the G-SIB assessment. The assessment methodology for G-SIBs requires a sample of banks to report a set of indicators to national supervisory authorities. These indicators are then aggregated and used to calculate the scores of banks in the sample. Banks above a cut-off score are identified as G-SIBs and are allocated to buckets that will be used to determine their higher loss-absorbency requirement. The page that was recently provides information that the Basel Committee uses in this process.
- The BIS paper on virtual banking highlights that the integration of technology, finance, and services is rapidly changing the banking landscape, as big techs, fintech firms, non-bank financial institutions, and incumbent banks take up stakes in virtual banking. New technology-driven models exploit the expanding data footprints of individuals and firms to generate information capital and reduce the reliance on collateral when offering loans and other financial services. Data and entities that manage data will be at the heart of this transformation. Financial regulators thus need to ensure that regulatory oversight delivers on the inclusion and intermediation-enhancing benefits of digital finance without compromising traditional regulatory goals. Also, there is a pressing need for a system of data governance that allows consumers and business to exercise control over their data through the granting and withholding of consent to the use and transfer of their data.
- The BIS working paper on expected and unexpected credit losses uses data on the U.S. bank loans from 1985 to 2021 and finds that in a credit loss phase a prototypical business loan portfolio is more diversified than a real estate portfolio. The authors extend the model behind the Basel III requirements for credit risk to incorporate uncertainty about the credit loss phase. This lets them distinguish between two sources of potential shortfalls in loss-absorbing resources: ignoring uncertainty and the uncertainty itself. We study how the shortfall associated with each source depends on the level of diversification in a credit portfolio and propose a method to rank the level of diversification across portfolios.
- The BIS-published paper on small business lending, which has been developed by a Federal Reserve Bank in U.S., identifies a new source of bank consolidation in the United States. For decades, both the financial and real sides of the economy have experienced considerable consolidation. The paper shows that banking-sector consolidation is, in part, a consequence of real-sector consolidation; since small banks are a disproportionate source of small-business credit, they are disproportionately exposed to shocks to small-business growth. Using a Bartik instrument based on national small-business trends and county-level industry exposure, the study shows that changes to the real-side demand for small-business credit is partially responsible for the relative decline in small banks’ deposits, income, and loan growth.
- BIS Innovation Hub Work Program
- IFC Annual Report
- G-SIB Assessment Reporting Instructions
- Paper on Virtual Banking
- Paper on Credit Losses
- Paper on Small Business Lending (PDF)
Keywords: International, Banking, Fintech, CBDC, Digital Currencies, Cyber Security, Regtech, Suptech, Work Program, Sustainable Finance, G-SIB Assessment, Reporting, Lending, Credit Risk, Expected Credit Loss, Annual Report, BIS Innovation Hub, SME, Kansas FED, Digital Banking, IFC, BIS, BCBS
ESG and climate expert for P&C insurance; IFRS 17 specialist and chartered accountant; extensive experience in both life and non-life insurance, with focus on capital management, financial performance, and financial reporting.
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.