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Basel Committee promotes global financial stability with new set of guiding principles
Bank of Spain Governor Pablo Hernández de Cos, chairman of the Basel Committee on Banking Supervision communicates the four guiding principles that will help the Committee in enhancing global financial stability: remembering the lessons of the past, global engagement and transparency, a disciplined focus on global financial stability issues, and adopting a forward-looking approach.

November 20, 2019 | Pablo Hernández de Cos
  • The Committee’s work will be guided by a medium-term perspective and will avoid the temptation of falling into a regulatory cycle
  • For effective banking supervision, the core principles embed the role of proportionality
  • A forward-looking approach will be adopted to assess emerging vulnerabilities

The work of the Basel Committee over the past decade, under the leadership of Nout Wellink and Stefan Ingves, has been substantive and substantial. The Basel III framework, which encompasses a number of reforms, has fixed many of the fault lines in the pre-crisis regulatory framework. Capital requirements have increased. Greater focus has been placed on truly loss-absorbing resources in the form of Common Equity Tier 1 (CET1) capital. The risk-weighted framework has been overhauled to enhance risk capture and improve comparability in banks’ reported capital ratios. A leverage ratio complements this framework by constraining excess leverage in the banking system. Macroprudential buffers, capturing both cross-sectional and time-varying risks, provide an overlay against system-wide risks. And we now have an international framework for mitigating excessive liquidity risk and maturity transformation, through the liquidity coverage ratio and net stable funding ratio.

The Basel III reforms have unquestionably strengthened the resilience of the global banking system. Since 2011, CET1 capital resources for internationally active banks have increased by 85% to over $4.1 trillion (EUR 3.7 trillion), and high-quality liquid asset holdings have increased by over 60% to $15 trillion (EUR 13.6 trillion). The system-wide level of bank leverage has decreased from 28 times to 17 times, with an average Tier 1 leverage ratio of 5.85%.

Through the process of developing its package of post-crisis reforms, the Committee carefully weighed the costs and benefits of regulation. In this regard, there is a stro...

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