The Basel Committee on Banking Supervision (Basel Committee) has published a speech given by its secretary general, William Coen. The speech is entitled Regulatory equivalence and the global regulatory system.

At the beginning of his speech Mr Coen discusses global standards and supervisory cooperation. He states that any review of “regulatory equivalence” requires an analysis to ensure regulatory comparability and then a determination of whether jurisdictions (and/or banks) have kept to the Basel standards. This is why the Basel Committee launched its Regulatory Consistency Assessment Programme that documents the significance of any deviations from the Basel framework and include a scale that gives an overview of a jurisdiction’s regulatory compliance with the global standard.

Mr Coen also provides an update on what the Basel Committee has done. The Basel Committee has largely completed the technical work needed to revise the Basel framework although there is one piece of unfinished business which is the calibration of the output floor.

Mr Coen accepts that the calibration of the output floor is a difficult question because of concerns related to its impact. He explains that even though the use of models for regulatory capital purposes related to credit risk has only been in place since around 2008 and despite the 80% floor that is part of the Basel II capital framework, the floor will likely have an impact on some banks. To acknowledge such differences in the readiness of banks across jurisdictions to meet new rules, the Basel Committee has in the past allowed time for banks and supervisors to meet the implementation timelines, along with transitional arrangements to meet the new standards. Mr Coen suspects that “a similar approach will be taken for this set of revisions”.

In terms of when the Basel Committee will be able to come to an agreement on the output floor Mr Coen states that given “the very broad support for reaching an agreement from all stakeholders, including the banking industry, I am hopeful that we can finalise the reforms in the near future.”

In terms of the Basel Committee’s future policy work Mr Coen mentions that it will be more narrowly concentrated on a small number of initiatives (for example provisioning); responses to frequently asked questions; and gauging the impact of the new standards on bank business models and behaviour. This will include identifying regulatory arbitrage and then determining an appropriate response, be it regulatory or supervisory.

View Regulatory equivalence and the global regulatory system, 25 May 2017