Global Regulators Determined to Finalize Basel Rules

Global banking regulators remain committed to finalizing the Basel rules and have narrowed their differences over the suite of capital rules, according to a recent Reuters article.

The Basel Committee of banking regulators had hoped to have the rules completed in January but failed to reach consensus on a key element known as the output floor. The output floor acts as a backstop to ensure a minimum level of capital.

In reiterating his commitment to the rules, Stefan Ingves, chairman of the Basel Committee said, "While the finalization of Basel III will take longer than originally expected, the Committee remains determined to reach agreement on the remaining elements, and recognizes the importance of providing clarity and certainty to all market participants."

At the end of a two-day meeting of the Basel Committee, members explained that the delay in the rules was not due to material issues, but rather the need for the Trump Administration to appoint a new Federal Reserve official responsible for banking supervision. The new official is due to be in place by April and will sit on Basel’s oversight board, where he or she will need to approve the rules.

According to the article, one stumbling block that the committee must overcome is President Trump's order to review U.S. banking regulations, some of which are related to existing Basel standards.

Chairman Ingves insisted that the main elements of the reform would still be in the package, including the risk-weighted asset framework, the leverage ratio framework, and the output floor. "The differences where they remain have narrowed, and work continues to reach an agreement," Chairman Ingves stated.

SFIG members believe that the current Basel capital rules, in their entirety, are overly punitive when applied to securitization. Please see our recent comment letters for more details.

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