From the Regulators

The revised capital rules for global banks will start to take effect in January 2022, and will be phased in over five years

By James Langton |

Global policymakers have agreed to the final set of reforms to the capital rules for global banks in response to the global financial crisis. These latest reforms aim to improve the risk sensitivity of the capital rules, while also bolstering the transparency and comparability of risk reporting.

The Basel Committee on Banking Supervision's oversight body, the Group of Central Bank Governors and Heads of Supervision (GHOS), has formally endorsed the outstanding Basel III post-crisis regulatory reforms, the committee announced on Thursday.

These latest reforms aim to improve the risk sensitivity of the capital rules for global banks, while also bolstering the transparency and comparability of risk reporting.

Among other things, the final tranche of reforms includes a revised standardized approach for credit risk and revisions to the internal ratings-based approach, reforms to the standardized approach for operational risk, and changes to the leverage ratio and a leverage ratio buffer for global systemically important banks.

"These reforms will help reduce excessive variability in risk-weighted assets and will improve the comparability and transparency of banks' risk-based capital ratios," says Stefan Ingves, chairman of the Basel Committee and governor of Sveriges Riksbank. "Now that the Basel III regulatory reform agenda is complete, we must focus on the important task of ensuring the standards are implemented consistently around the world."

The revised standards will start to take effect in January 2022, and will be phased in over five years. Changes to the minimum capital requirements for market risk were originally to be implemented in 2019, but they have now been put off until 2022 to allow more time for banks and regulates to adjust, and to align with the revisions for credit risk and operational risk that were finalized today.

"Today's endorsement of the Basel III reforms represents a major milestone that will make the capital framework more robust and improve confidence in banking systems," adds Mario Draghi, GHOS chairman and president of the European Central Bank. "The package of reforms endorsed by the GHOS now completes the global reform of the regulatory framework, which began following the onset of the financial crisis."

The Office of the Superintendent of Financial Institutions (OSFI), which oversees Canada's federally regulated financial institutions, issued a statement endorsing the final reforms, and announced that it will launch a public consultation on implementing these latest reforms in the spring of 2018.

"The completion of the Basel III reforms is an important step in ensuring a global capital regime for banks that is credible and that enhances confidence in the banking sector," says Jeremy Rudin, OSFI superintendent, in a statement.