Basel Committee Plans to Strengthen Banking System Resilience
The Basel Committee has announced a series of steps designed to make the banking system more resilient to financial shocks. They plan to enhance various aspects of the Basel II Framework, including the capital treatment of complex structured credit products, liquidity facilities to support asset-backed commercial paper (ABCP) conduits, and credit exposures held in the trading book. At the same time, the Committee notes the importance of prompt implementation of the Basel II framework, as this will help address a number of the shortcomings identified by the financial market crisis. They also plan to strengthen global sound practice standards for liquidity risk management and supervision, which the Committee will issue for public consultation in the coming months. Additionally, the Committee is initiating efforts to strengthen banks’ risk management practices and supervision related to stress testing, off-balance sheet management, and valuation practices, among others. They are also seeking to enhance market discipline through better disclosure and valuation practices. The Committee say that these measures will be introduced in a manner that promotes long-term bank resiliency and strong supervision, while seeking to avoid potentially adverse near-term impacts as the re-pricing of risk and deleveraging process continues in financial markets. The Committee’s actions also support the Financial Stability Forum’s Working Group on Market and Institutional Resilience, which recently released its report to the G7 Finance Ministers and Central Bank Governors.