The Basel Committee on Banking Supervision has unanimously reaffirmed their expectation of implementing all aspects of the Basel III framework, an international set of banking standards aimed at improving resilience, without further delay.
In its latest meeting in Switzerland this week (November 19-20), members unanimously agreed that consistent implementation is critical, a stance echoed by G20 leaders.
As part of this push, the Committee reviewed Korea’s adherence to key aspects of Basel III, including exposure limits and liquidity management.
According to Alex Knight, Head of EMEA at Baton Systems, the Basel Committee’s call underscores that intraday liquidity risk is not just a side issue, but the foundation of financial stability and investor confidence.
“Banks must urgently transition from outdated legacy systems to modern, robust intraday liquidity management tools,” he said.
“Real-time, high-quality data enables financial institutions to precisely monitor and predict liquidity needs and intelligently sequence payments, minimizing risks of shortfalls. In turn, this improves the resilience of individual banks and strengthens the stability of the global financial system, especially during periods of stress,” he added.
In addition, the Committee discussed banks’ interconnections with non-bank financial intermediation (NBFI).
NBFI, often dubbed the “shadow banking sector,” continues to grow and evolve in ways that could present risks and vulnerabilities to the global banking system.
Banks are connected to NBFI through a wide range of direct and indirect activities and services.
Data gaps hinder the effective measurement and management of risks to banks from their NBFI interconnections.
Banks and supervisors must continue to be vigilant to these risks and to better gauge the range and materiality of interconnections.
The Committee reviewed the comments received to its consultation on guidelines for counterparty credit risk management.
Building on the feedback received, it approved a final set of guidelines that seek to address weaknesses in banks’ counterparty credit risk management exposed in recent episodes of NBFI distress. The finalised guidelines will be published in December.
Cédric Cajet, investment management strategy director at NeoXam, said: “The committee has identified several gaps that make it extremely difficult to fully assess the vulnerabilities associated with non-bank leverage.When it comes to liquidity risk, these institutions have never been held to the same standards as the banks, in spite of their increasingly integral role in the effective functioning of global markets.”
“Pension funds, asset managers, hedge funds, insurers, and other non-banking financial institutions need to ensure they capture positions, valuations and exposures based upon all of their investment information,” he commented.
As part of its efforts to strengthen supervisory effectiveness in light of the lessons learned from last year’s banking turmoil, the Committee discussed its work to develop a suite of practical tools to support supervisors in their day-to-day work.
This work covers the supervision of liquidity risk and interest rate risk in the banking book, the assessment of the sustainability of banks’ business models, and the importance of effective supervisory judgment. An update on this work will be published in early 2025.
