On 27 May 2022, the Basel Committee met and approved a finalised set of principles for the effective management and supervision of climate-related financial risks. The Committee also progressed work on specifying crypto-asset prudential treatment and issuing a second consultation paper. Additionally, the Committee finalised the review of the treatment of cross-border exposures within the European Banking Union (EBU) on the G-SIB methodology.
Key points include:
- Climate-related financial risks: The finalised principals will be published in the coming weeks and seek to promote a principle-based approach to improving risk management and supervisory practices to mitigate climate related financial risk. Furthermore, they are designed such that they can be adapted to a diverse range of banking systems in a proportional manner.
- Crypto-assets: Following an initial consultation last year, recent developments have further highlighted the importance of having a global minimum prudential framework to mitigate risks from crypto-assets. As such, building on feedback received by external stakeholders, the Committee plans to publish another consultation paper over the coming month, with a view to finalising prudential treatment around the end of the year.
- G-SIB assessment methodology: The committee agreed to give recognition in the global systemically important banks (G-SIB) framework to progress that has been made in the development of the EBU, through existing methodology which allows for adjustments to be made according to supervisory judgement. Under the agreement, a parallel set of G-SIB scores will be calculated for EBU-headquartered G-SIBs and used to adjust their bucket allocations. The parallel scores recognise 66% of the score reduction that would result from treating intra-EBU exposures as domestic exposures under the G-SIB scoring methodology. The Committee’s agreement will not affect the classification of any banks as G-SIBs or the scores or bucket allocations of banks outside of the EBU
- Risks and vulnerabilities to the global banking system: Following the outbreak of the Ukraine conflict, the Committee held a series of meetings to discuss risks and vulnerabilities to the global banking system. The Committee noted vulnerabilities such as rising inflation and interest rates in a number of the markets and broad based asset repricing. As such, the Committee stressed the importance for banks and supervisors to closely monitor, assess and mitigate these risks and vulnerabilities.