Basel Committee evaluation shows that the implemented Basel III reforms contributed to increase bank resilience

Press release  | 
14 December 2022
  • New report provides the Committee's first holistic evaluation of the impact and efficacy of the implemented Basel III reforms.
  • Report indicates that the implemented reforms are an important driver of the overall increase in bank resilience and shows that market-based measures of systemic risk have also improved.
  • Report finds no considerable evidence of negative side effects of the reforms on banks' lending and capital costs, nor does it identify redundancy among elements of the reforms, while acknowledging greater regulatory complexity.

The Basel Committee on Banking Supervision today issued a third report on its evaluation of the impact and effectiveness of implemented Basel reforms. Evaluation of the impact and efficacy of Basel III reforms sets out the Committee's first holistic evaluation of how the reforms have affected bank resilience and systemic risk as well as assessing the possible negative side effects on banks' lending and capital costs. The report also investigates how the different elements of the reforms have interacted, and assesses the framework's regulatory complexity.

While the Committee's first two evaluation reports – Early lessons from the Covid-19 pandemic on the Basel reforms and Buffer usability and cyclicality in the Basel framework – revealed that some aspects of the framework – such as the buffers during the pandemic – may not always function fully as intended, the present report confirms that the global banking system has become more resilient since the implementation of the Basel III reforms.

This increased resilience is partly attributed to these reforms, including the strengthened capital and liquidity requirements.

The report shows that the gains in resilience were greater for the banks that were more heavily affected by the reforms. It finds that market-based measures of banking-sector systemic risk have improved following the implementation of the reforms, making the financial system less vulnerable to the distress of individual banks.

The report finds no considerable evidence of negative side effects on banks' capital costs and lending. Instead, banks that were more heavily affected by the reforms saw a greater reduction in their cost of capital. There is some indication, although no robust evidence, that their lending grew less than that of their peers while overall bank lending expanded in most jurisdictions.

The report also assesses how the components of the reforms have interacted and concludes that the Basel III Framework does not suffer from redundant elements. It acknowledges that Basel III's more sophisticated and multidimensional framework, which was introduced to address a wider variety of risks, results in higher regulatory complexity, but does not assess whether such complexity could be reduced while maintaining bank resilience.

The evidence presented in the report is based on bank-level data collected by the Committee since 2011, augmented with additional market and macroeconomic data. The evaluation is based primarily on the period up to 2019 and controls for general positive trends in order to identify the reforms' effects on both regulatory ratios and market-based measures of bank resilience and systemic risk.

Based on the progress made in implementing the outstanding Basel III standards, the Committee will continue to pursue its work programme on evaluating the impact and efficacy of Basel III in the medium term.