Crumbling bank

Following an analysis of the banking sector turmoil earlier this year, global regulators are reviewing how well their post-crisis reforms worked and are considering enhanced guidance.

The group of central bank governors and regulators that oversees the Basel Committee on Banking Supervision said the recent turmoil represented the “most significant system-wide banking stress” since the financial crisis. After examining the response, it concluded that quick intervention by policymakers and efforts to improve the resilience of the banking system since the crisis helped lessen the impact.

The group, which is chaired by Bank of Canada governor Tiff Macklem, reiterated the importance of implementing the post-crisis reforms, known as Basel III, noting that about one-third of countries have fully adopted the new regime, with the other two-thirds aiming to have the new regime in effect by the end of 2024.

“The already implemented Basel III reforms helped shield the global banking system and real economy from a more severe banking crisis,” the group said. “These events once again underscored the importance of implementing the outstanding Basel III standards.”

The oversight group also approved future work by the Basel Committee, including efforts to strengthen bank supervision and to identify issues that require additional guidance from regulators.

It also endorsed follow-up work to assess whether the Basel III regime worked as intended in areas such as liquidity risk and interest rate risk in the banking book.

Additionally, the group endorsed the Basel Committee’s findings that banks’ risk management practices and governance arrangements are the most important source of resilience; the role of strong oversight in ensuring the safety and soundness of banks; and the importance of supervisors acting early and decisively to fix weaknesses in bank practices.