Basel Committee on Banking Supervision (BCBS) The Basel Committee on Banking Supervision (BCBS) is a committee of banking supervisory authorities established by the central bank governors of the G10 countries in 1974. The committee expanded its membership in 2009 and then again in 2014. In 2019, the BCBS had 45 members from 28 Jurisdictions, consisting of Central Banks and authorities responsible for banking regulation. It provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. The Committee frames guidelines and standards in different areas – some of the better known among them are the international standards on capital adequacy, the Core Principles for Effective Banking Supervision and the Concordat on cross-border banking supervision.The Committee’s Secretariat is located at the Bank for International Settlements (BIS) in Basel, Switzerland. The Bank for International Settlements (BIS) hosts and supports several international institutions engaged in standard-setting and financial stability, one of which is BCBS. Yet like the other committees, BCBS has its governance arrangements, reporting lines and agendas, guided by the central bank governors of the G10 countries.The Basel Committee on Banking Supervision (BCBS) is the primary global standard-setter for the prudential regulation of banks and provides a forum for cooperation on banking supervisory matters. Its mandate is to strengthen the regulation, supervision, and practices to enhance financial stability. The Committee is concerned with banking regulation, but regulators in many jurisdictions, for example, the UK, also apply similar rules to non-bank financial institutions such as investment management and securities firms. In other words, many of the banking regulations covered in the following sections may also apply, albeit in a modified form, to non-banks. There was strong recognition within the Committee of the overriding need for a multinational accord to continually strengthen the international banking system’s stability and remove a source of competitive inequality arising from differences in national capital requirements. The Basel Accord stipulates the minimum capital ratios that banks should maintain in member countries. The minimum set of risks for which capital ratios are to be maintained are credit, market and operational risks. In other words, the greater the level of credit, market and operational risk within a firm, the more capital the firm should hold. As we will see below, other risk types are also subject to regulatory capital requirements, but these tend to be firm-specific –. In contrast, the assumption within the Basel Accord is that all firms in the financial sector are subject to credit, market, and operational risks. In recent years, enhancements to the Accord (now known as Basel III) have introduced several concepts beyond capital ratios, including:
- a countercyclical capital buffer, which places restrictions on participation by banks in system-wide credit booms intending to reduce their losses in credit busts
- a leverage ratio – a minimum amount of loss-absorbing capital relative to all of a bank’s assets and off-balance sheet exposures regardless of risk weighting, and
- a set of liquidity requirements/ratios
- risks not covered under Pillar 1
- the way that risk is managed
- the quality of the control infrastructure
- how the calculated risk profile relates to the strategic and financial plans of the firm.
Evita Veigas
4 min read