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    BCBS Report Examines Progress in Implementation of Basel III Reforms

    November 03, 2020

    BCBS published a report updating G20 leaders on the progress toward implementation of Basel III regulatory reforms in the 27 Basel Committee member jurisdictions. The report summarizes the outcomes of the Regulatory Consistency Assessment Program (RCAP) of BCBS and provides an update on Basel-Framework-related measures taken by members in response to COVID-19 crisis. The RCAP monitors the progress of members toward adoption of Basel III standards, assesses the consistency of domestic banking regulations with Basel III standards, and analyzes the prudential outcomes of these regulations. The report contains Annexes that summarize the adoption status and implementation consistency of Basel standards. BCBS also announced that it now intends to complete the outstanding implementation assessments of net stable funding ratio and large exposures framework by the end of 2022, instead of the earlier planned timeframe of 2021.

    The report highlights that,  since last year, further progress has been made toward the implementation of Basel III standards in a full, timely, and consistent manner. Banks have continued to build capital and liquidity buffers while reducing their leverage. Prior to the impact of COVID-19 pandemic, large internationally active banks had made further progress toward meeting the fully phased-in final Basel III capital requirements and their liquidity ratios remained stable, compared with end of 2018. More recent data, which incorporate the impact of COVID-19 crisis, suggest that capital and liquidity ratios of banks have generally remained stable. The Basel III standards for capital, liquidity, and global systemically important banks (G-SIBs) have generally been transposed into domestic regulations within the timeframe set by the Basel Committee. The key components, including the risk-based capital standards and the liquidity coverage ratio (LCR), are now enforced by all member jurisdictions.

    Additionally, most of the member jurisdictions have final rules in place for other Basel III standards, including those related to the net stable funding ratio (NSFR), the leverage ratio, the standardized approach for measuring counterparty credit risk (SA-CCR), and the supervisory framework for measuring and controlling large exposures. However, the final rules for some standards have not yet come into force in some jurisdictions and many jurisdictions have faced delays in implementing certain standards based on the agreed timelines. To date, 10 jurisdictions have been assessed and found to be “compliant” with NSFR and large exposures standards. BCBS had initially planned to complete a review of the implementation of the NSFR and the large exposures framework for all member jurisdictions in 2021. However, in March 2020, it agreed to postpone all outstanding jurisdictional assessments planned in 2020, under the RCAP, to commit all the resources that are required to address the implications of COVID-19 crisis. BCBS has been gradually mapping out a return to resume the jurisdictional assessments, with a view to completing the outstanding implementation assessments of NSFR and large exposures framework by the end of 2022 and preparing the implementation assessments of the final Basel III reforms.

    As of the end of 2019, all internationally active banks continue to meet the fully phased-in risk-based minimum capital requirement and the target common equity tier 1 (CET1) capital requirements. In addition, BCBS is taking forward the evaluation of its Basel III reforms that have been implemented to date. The evaluation will examine the extent to which Basel III standards have achieved their intended objectives and will incorporate lessons learned from the COVID-19 crisis. BCBS further notes that most Basel-framework-related measures taken by its members in response to the COVID-19 crisis have been capital or liquidity-related, with the primary objective of supporting banks' ability to continue lending and providing liquidity to the real economy. Most measures make use of the flexibility embedded in the Basel framework, with many other measures taken over and above this flexibility being temporary in nature. 

     

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    Keywords: International, Banking, Basel, RCAP, G20, COVID-19, Regulatory Capital, Regulatory Reforms, BCBS

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