IMPLEMENTATION OF BASEL III TO ENHANCE THE RESILIENCE OF THE BANKING SYSTEM: FEATURES AND KEY CHANGES
Abstract
The article is dedicated to examining the key changes in the Basel III regulatory standards to ensure the resilience of the banking system, identifying the status of implementation, and their specific characteristics by countries. Attention is given to the history of the creation of Basel standards and their development over time. The main key elements of Basel III are investigated, which represents an international regulatory standard aimed at minimizing risks in the banking sector and enhancing control and supervision. The status of Basel standards implementation worldwide across the main regulatory categories is determined. The main important updates in Basel IV are identified, including: the revised standardized approach to credit risk; the introduction of a minimum issuance volume that limits the extent to which banks can use internal models for calculating their capital requirements; changes in the operational risk structure; modifications in approaches based on internal ratings, among others. Emphasis is placed on the particular importance of regulating crypto-assets and the need to develop transition plans in accordance with the prudential system, which must comply with sustainability obligations. Banking supervisory authorities will monitor how banks manage ESG risks and will include ESG considerations in the context of the annual supervisory review. The importance of environmental, social, and governance (ESG) aspects is becoming increasingly relevant for financial institutions. Ensuring environmental sustainability is important not only for preserving the environment but also for achieving better financial performance. Various regulatory approaches to completing the updates of the Basel framework (EU, UK, and US) are discussed. It is noted that one of the areas that could lead to complications is the discrepancy between different sets of data. The quality of data is extremely important for ensuring the accuracy of reporting. Mismatches in data can lead to errors in the final report. Therefore, it is necessary to carefully verify data and adapt its format, which can be a challenging task. Banks should consider using specialized tools to ensure high data quality and reporting accuracy. The future development of Basel standards anticipates their continuous updating and review to adapt to changes in the banking sector and efforts to enhance the resilience and stability of the global financial system.
References
Basel III standards adoption as of 30/09/2023 (2023) BIS. URL: https://www.bis.org/temp/panels/smartembed5.htm?hasTabs=true&isResponsive=true&minWidth=500&midWidth=1100&url=https://dataviz.bis.org/t/MED/views/RcapBasel3ImplementationStatus/Overview?:isGuestRedirectFromVizportal=y&:embed=y
Basel III standards newly adopted as of 30/09/2023 (2023) BIS. URL:https://www.bis.org/temp/panels/smartembed5.htm?hasTabs=true&isResponsive=true&minWidth=500&midWidth=1100&url=https://dataviz.bis.org/t/MED/views/RcapBasel3ImplementationStatus/Overview?:isGuestRedirectFromVizportal=y&:embed=y
Berrigan John (2023) Basel III in the European Union. International banker. URL:https://internationalbanker.com/banking/basel-iii-in-the-european-union/
BIS Annual Economic Report (2023). Сhapter II. Monetary and fiscal policy: safeguarding stability and trust. BIS. URL:https://www.bis.org/publ/arpdf/ar2023e2.htm
Chebib Jared (2023) As the Basel deadline nears, are banks up for the challenge? Ernst & Young Global Limited. URL:https://www.ey.com/en_pl/banking-capital-markets/as-the-basel-deadline-nears-are-banks-up-for-the-challenge
Galand Vincent (2023) Looking ahead to the Capital Requirements Regulation version 3 (CRR3). Ernst & Young Global Limited. URL:https://www.ey.com/en_lu/banking-capital-markets/looking-ahead-to-the-capital-requirements-regulation-version-3--
Goranitis Dimitrios (2023). European Council: Implementation of the Basel III reforms. Deloitte. URL:https://www2.deloitte.com/ro/en/pages/risk/articles/european-council-implementation-basel-iii-reforms.html
Graham Sarah (2023) UK and European banks progress Basel III reform programmes despite rising regulatory compliance costs and data challenges Ernst & Young Global Limited. URL:https://www.ey.com/en_gl/news/2023/05/uk-and-european-banks-progress-basel-iii-reform-programmes-despite-rising-regulatory-compliance-costs-and-data-challenges
Hernández de Cos Pablo (2023) Reflections on the 2023 banking turmoil. BIS. URL: https://www.bis.org/speeches/sp230914.htm
Latest updates on the banking package (2023). European Commission. URL:https://finance.ec.europa.eu/news/latest-updates-banking-package-2023-12-14_en
Regulators announce ‘Basel III endgame’ rules for large US banks(2023). Financial Times. URL:https://www.ft.com/content/d4d15a2a-1568-47db-bd29-937a478dc768
Report on the 2023 banking turmoil. (2023). Bank for International Settlements (BIS)/Basel Committee on Banking Supervision (BCBS). URL: https://www.bis.org/bcbs/publ/d555.htm
Schroeder Pete (2023) Explainer: What is the 'Basel III endgame' and why are banks worked up about it?. Reuters.
The development of Basel Accords, its European translation, and future directions (2023). Raiffeisen Bank International. URL:https://bank.rbinternational.com/en/regulatory-fastlane/home/rbi-regulatory-fastlane/regulatory-learning1/General-Banking/Article-N8.html
The development of Basel Accords, its European translation, and future directions (2023). Raiffeisen Bank International. URL: https://bank.rbinternational.com/en/regulatory-fastlane/home/rbi-regulatory-fastlane/regulatory-learning1/General-Banking/Article-N8.html
The EBA second mandatory exercise on Basel III full implementation shows a significantly reduced impact on EU banks with shortfalls nearly fully absorbed (2023). European Banking Authority. URL:https://www.eba.europa.eu/publications-and-media/press-releases/eba-second-mandatory-exercise-basel-iii-full-implementation
This work is licensed under a Creative Commons Attribution 4.0 International License.
