Finance Watch Calls for More Consistent Global Implementation of Basel III

Finance Watch has called for greater harmonization and standardization in the global implementation of Basel III to improve the framework's overall effectiveness.

The European non-profit association’s 'Momentum: The Evolution and Challenges of Bassel' report urged renewed political commitment to improve the Basell III framework.

To achieve harmonized implementation, it recommended simplifying the complex regulatory landscape, reducing the scope for national deviations and enforcing uniform rules to create a level playing field for internationally active banks worldwide.

It says a more harmonized approach will streamline the framework to ensure consistency and comparability while phasing out internal model-based approaches in favor of standardized risk-sensitive methods.

It suggested that policymakers should strengthen bank supervision by developing global frameworks and standards for real-time prudential reporting and supervisory bank access.

To further enhance bank supervision, policymakers should reduce the involvement of bank supervisors in the pre-approval of internal risk models and focus limited expert resources on core supervisory tasks, according to Finance Watch.

It also urged the integration of climate risk into banking regulations to address the financial threats posed by stranded fossil fuel assets and prevent significant future losses.

Finance Watch urged policymakers to implement these changes because the report indicated that the complexity of the current Basell III framework may undermine its effectiveness.

It also said internal risk models used by banks project a false sense of predictability and continue to distort competition in favor of the largest institutions.

Therefore, Finance Watch calls upon European policymakers to strengthen their commitment to the Basel process and actively re-engage with its partners, especially in the US, to avoid a regulatory “race to the bottom”.

Christian M. Stiefmüller, senior research and advocacy advisor at Finance Watch, said:  “Instead of making it easier for jurisdictions to buy into a global consensus the excessive complexity of Basel III seems to have had the opposite effect. Major jurisdictions, including the EU, seem to be moving away from even the modest achievements under the Basel III agreement.”