Basel puts new banking policy initiatives on hold until 2019 pending review

Global banking standard-setters have promised to pause new policy initiatives until 2019 so they can assess the impact of post-crisis reforms.

The Basel Committee on Banking Supervision said on Tuesday that its priorities for the next two years would include finalising a long-awaited overhaul of existing rules. It will, however, hold off embarking on any major new projects until it completed its assessment of the slew of banking reforms introduced over the last eight years in the wake of the financial crisis.

The lack of a major new initiatives by Basel will be welcomed by the industry, which is trying to grapple with the prospect of regulatory uncertainty hastened by Brexit and the deregulatory push of US President Donald Trump. Earlier on Tuesday, senior bankers told the European Parliament’s Economic Affairs Committee that there should be a regulatory pause because of this uncertainty.

The Basel Committee’s unveiling of its short to-do list for the next two years comes amid wider questions over its relevance. The committee and its sister Financial Stability Board — chaired by Mark Carney, the governor of the Bank of England — grew in prominence during the financial crisis. But in the United States particularly, there has been a backlash recently as Mr Trump has vowed to roll back some elements of the reforms.

Mr Carney has said several times over the last month that it was important to resist “regulatory fatigue” while acknowledging that post-crisis rules cannot be set in stone and must be flexible enough to deal with unintended consequences.

A stalemate has also arisen in the Basel Committee’s talks to overhaul existing rules until Mr Trump picks the replacement to Dan Tarullo, the US’s top banking supervisor who has played a key role in discussions at the committee and FSB.

The committee said on Tuesday:

“An important priority for the Committee is to continue monitoring emerging cyclical and structural risks, changes in banks’ business models and innovative transactions or regulatory arbitrage techniques which may go against the objective or spirit of the Basel framework. The Committee will take a systematic micro- and macroprudential approach to monitoring these developments, which will help inform the Committee in considering whether any policy and/or supervisory responses are warranted.

The Committee will also continue its work to assess the impact of its post-crisis reforms. This will include assessing the effectiveness of the Committee’s post-crisis reforms in reducing excessive variability of banks’ risk-weighted assets, in addition to a more general assessment of the extent to which the Committee’s post-crisis reforms have achieved their intended objectives.”

The committee’s to-do list still includes finishing existing projects, such as examining how regulators in different countries assess banks’ exposures to sovereign debt — a particularly thorny argument in regions including the European Union.

It will also try to stamp out inconsistencies in how regulators in different countries apply the rules, particularly around so-called Pillar 2, which gives them discretion in topping up individual banks’ capital requirements.