The Basel Committee on Banking Supervision (BCBS) released its proposals for strengthening capital and liquidity regulations: two consultation papers entitled ‘Strengthening the Resilience of the Banking Sector’ and ‘International Framework for Liquidity Risk Measurement, Standards and Monitoring’.
While we agree with the direction of the proposals and many of its components, we also have concerns that we believe require further careful consideration. In particular:
- The combined effects of the proposed higher capital requirements and the proliferation of buffers seem overly conservative and lack transparency.
- There is no discussion of what constitutes an appropriate level of capital and liquidity in the financial system: this is an ideal time to make an assessment.
- The macroeconomic consequences of the proposals need to be carefully evaluated as do calibration and the timescales envisaged for transition.
- The differing objectives of financial and regulatory reporting lead us to question whether one set of standards can satisfy the requirements of shareholders and regulators (and raises a wide range of implementation issues).
- There needs to be a more balanced focus on systemic factors with less focus on the capital regime and liquidity requirements and more on other regulatory tools.