14 TRADE & FINANCE
Improving the quality of banking supervision worldwide in the post-reform world
Stefan Ingves, Chairman of the Basel Committee on Banking Supervision and Governor of Sveriges Riksbank
Since the onset of the global financial crisis, the regulatory community have initiated a series of significant reforms. The Basel III framework constitutes a central component of the G20 regulatory reforms that have followed. The aim has been to develop a regulatory framework that increases the resilience of the banking system. In turn, this will reduce the probability and mitigate the impact of future financial crises, setting the stage for strong, sustainable and balanced growth.
The Basel framework comprises three Pillars. Pillar 1 sets minimum capital( and now liquidity) requirements. Pillar 2 is the supervisory review process. And Pillar 3 promotes market discipline through public disclosure. All three pillars have been strengthened significantly through a variety of measures.
With the reform agenda largely completed, it is tempting to think that the hard work is over. But, in fact, it is only beginning. First, we must ensure that the reforms are implemented by both authorities and banks as they were intended, which the Committee is doing through its Regulatory Consistency Assessment Programme. Second, we must continue to strengthen our oversight and supervision as banks incorporate the new regulatory requirements into their risk management frameworks. In this respect, banks and supervisors both have a role to play.
Pillar 1: stronger minimum requirements for regulatory capital and liquidity
Basel III responds to the risk management and supervisory challenges observed during the crisis. The framework seeks to improve banks’ resilience to a range of shocks. It also provides supervisors with the necessary tools to address weaknesses identified in individual banks and oversee the health of the broader financial system.