The Covid-19 pandemic triggered an exogenous economic crisis, which held back the implementation of the unprecedented overhaul of banking regulatory standards initiated in the wake of the 2008 financial crisis. However, the Group of Central Bank Governors and Heads of Supervision (GHOS) reaffirmed their expectation of a full, timely and consistent implementation of all Basel III standards based on a revised timeline. This implementation will further challenge the banks notably in the EU where the sector is highly competitive and badly hit notably by the monetary context.
In addition, looking ahead, the regulatory framework will have addressed the global emerging challenges posed by topics such as climate-related financial risks, cyber risk and operational resilience, and the digitalisation of finance issues regarding data privacy and third-party risk management. Given the cross-sectoral nature of many of these issues, strong cooperation between standard setters – such as the Basel Committee – and stakeholders is important to encompass these new risks in the capital framework, in order also to ensure a balanced regulatory outcome combining resilience and an adequate level of economic contribution of the banking sector.
Points of discussion
- What has been the contribution of the EU banking system to the financing of the EU economy and sovereigns during the Covid-19 outbreak, and what are the expected lasting consequences for EU banks’ profitability, risk profile and solvency/liquidity position?
- What are the lessons learned from the behaviours of the banking framework during the pandemic and more generally, what are the emerging trends regarding bank risks that should now be taken into account?
- What are the policy priorities in the EU regarding the implementation and evolution of the banking framework in the global context?