The Basel Committee recently announced updates on its work regarding climate-related financial risks, cryptoassets, the G-SIB assessment methodology and disclosure standards. This follows discussions on risks and vulnerabilities to the global banking system, as well as policy and supervisory initiatives, at its meetings of 21 October, and 5 and 8 November.
Climate-related financial risks
The Committee is currently assessing and developing a suite of potential measures – spanning disclosure, supervisory and regulatory measures – to address climate-related financial risks to the global banking system, following the publication of a series of analytical reports earlier this year.
To that end, the Committee agreed to consult later this month on a set of principles for the effective management and supervision of climate-related financial risks at internationally active banks.
On disclosure measures, the Committee welcomed the establishment of the International Sustainability Standards Board, and is exploring the use of the Pillar 3 framework to promote a common disclosure baseline for climate-related financial risks. The Committee also agreed to continue to explore the relative merits of potential regulatory measures.
Cryptoassets
The Committee reviewed the comments received regarding its consultation on the prudential treatment of banks’ cryptoasset exposures. Members reiterated the importance of developing a conservative risk-based global minimum standard to mitigate prospective risks from cryptoassets to the banking system, consistent with the general principles set out in the consultative document. Accordingly, the Committee will further specify a proposed prudential treatment, with a view to issuing a further consultative document by mid-2022.
G-SIB assessment methodology
The Committee discussed the feedback to its consultation earlier this year for a technical amendment to the process for reviewing the assessment methodology for global systemically important banks (G-SIBs). The Committee agreed to proceed with its proposed approach to replacing the existing three-year review cycle of the methodology with a process of ongoing monitoring and review in order to ensure that it remains appropriate over time. In the near term, the Committee will review the implications of developments related to the European Banking Union for the G-SIB methodology. In particular, this will include a targeted review of the treatment of cross-border exposures within the Banking Union on the G-SIB methodology.
Disclosure standards
The Committee approved the final standards for Pillar 3 disclosures related to the revised market risk framework and a set of voluntary disclosures for banks’ sovereign exposures. This follows the Committee’s consultation on these standards in 2019. The final disclosure standards will be published in the coming weeks.
Risks and vulnerabilities to the global banking system
The Committee discussed the impact of the prolonged low interest rate environment and its evolving outlook on banks’ profitability, business models and risk-taking behaviour. A deep-dive thematic analysis took stock of the cyclical and structural drivers behind interest rate dynamics and banks’ responses, the degree of heterogeneity across banking systems, and the main supervisory challenges and risks. The Committee will continue assessing these issues.
Members also took stock of banks’ operational resilience, including the reliance on third- and fourth-party service providers. The Committee will continue to assess the supervisory and policy implications related to third- and fourth-party risk management and concentration risk, in coordination with other global standard-setting bodies and international forums.