Basel Committee advances work on cryptoassets

Basel Committee takes stock of recent banking turmoil, agrees to continue to examine lessons learned and emphasises importance of strengthening supervisory effectiveness.

Reaffirms expectation of implementing all aspects of Basel III in full and consistently.

Agrees to consult on planned revisions to the Core principles for effective banking supervision.

The Basel Committee on Banking Supervision met on 6 June in Basel to take stock of recent market developments and risks to the global banking system, and to discuss a range of policy and supervisory initiatives.

Risks and vulnerabilities to the global banking system

The Committee discussed the outlook for the global banking system in light of recent economic and financial market developments. Members discussed analysis of the banking turmoil and agreed that:

• The first and most important source of financial and operational resilience comes from banks' own risk management practices and governance arrangements.
• It is critical that supervisors have the ability and willingness to act early and effectively to identify and promptly correct weaknesses in bank practices.
• The Basel III reforms that have been implemented to date helped shield the global banking system and real economy from a more severe banking crisis. Members unanimously reaffirmed their expectation of implementing all aspects of the Basel III framework in a full and consistent manner, and as soon as possible, in order to further enhance the resilience of the global banking system.

The Committee agreed to continue to examine the supervisory and regulatory implications stemming from the turmoil, building on existing initiatives already underway. This includes work on strengthening the effectiveness of supervision, liquidity risk management and interest rate risk in the banking book.

Looking ahead, banks and supervisors must continue to be vigilant to the evolving outlook. This includes the need for ongoing monitoring and mitigation of near-term risks related to rising interest rates and potential credit risk dynamics. The Committee will publish a newsletter on credit risk practices next month.

In addition, many of structural trends previously identified by the Committee – including risks and vulnerabilities related to banks' interconnections with non-bank financial intermediation, climate-related financial risks and digitalisation – should continue to play a central role in banks' risk management and supervisory oversight.

Basel Core Principles

As noted in the Committee's work programme for 2023-24, the Committee is reviewing its Core principles for effective banking supervision ("Basel Core Principles"), drawing on supervisory insights and structural changes since the previous update in 2012. Members agreed to consult on revisions to the Basel Core Principles and to seek the views of a wide range of stakeholders. A consultation paper will be published next month.

Cryptoassets

The Committee assessed certain outstanding elements of the prudential treatment of banks' exposures to cryptoassets. As noted in the publication of the standard in December 2022, this includes work related to the treatment of permissionless blockchains as well as the eligibility criteria for "Group 1" stablecoins. Any potential revisions made to the existing standard will be subject to public consultation.

Climate-related financial risks

Members took stock of the work related to the development of a Pillar 3 framework requiring disclosure of bank exposures to climate-related financial risks. The framework would complement, and be interoperable with, parallel disclosure initiatives under way by the International Sustainability Standards Board and other authorities. The Committee agreed to issue a consultation paper on the proposed framework by the end of this year.

The Committee also took stock of the use of climate scenario analyses by banks and supervisory authorities. Members agreed to further assess bank and supervisory practices in this area.

Implementation of Basel III reforms

As part of its Regulatory Consistency Assessment Programme, the Committee reviewed and approved the assessment reports on the United States' implementation of the Net Stable Funding Ratio and large exposures framework. The reports will be published next month.