Evaluating the effectiveness of Basel III during Covid-19 and beyond

Keynote address by Pablo Hernández de Cos, Chair of the Basel Committee on Banking Supervision and Governor of the Bank of Spain, at the BCBS-Bundesbank-CEPR workshop on evaluating financial regulation, 20 April 2021.

BCBS speech  | 
20 April 2021


Good afternoon, and welcome to this virtual workshop jointly organised by the Basel Committee's Research Group, the Deutsche Bundesbank and the Centre for Economic Policy Research. Let me start by thanking our friends at the Programme Committee for putting together very topical sessions and distinguished speakers over these two days.

As part of its work, the Basel Committee consistently seeks the views and inputs of a wide range of stakeholders, including academics, analysts, banks, market participants and the general public. This workshop, along with all other events organised under the Committee's outreach programme with external stakeholders, are critical to engage with all relevant counterparts and discuss how best to strengthen the regulation, supervision and practices of banks worldwide with the purpose of enhancing financial stability, which is the core mandate of the Basel Committee. I am sure that this workshop will help contribute to meeting this objective.

The Committee's work programme for 2021–22, which was recently published, comprises three main themes: first, supporting Covid-19 resilience and recovery; second, assessing and mitigating risks and vulnerabilities to the banking system, with the intention of putting particular emphasis on new origins of risk, such as those coming from climate change or technology; and third, strengthening supervisory coordination and practices. In addition, the Committee's Basel III-related work will focus on monitoring the full, timely and consistent implementation of Basel III reforms by our members, and completing an evidence-based evaluation of the effectiveness of these reforms.

Let me elaborate on the latter. Evaluating financial regulation, including its intended and unintended effects, and analysing how banks have responded to post-crisis reforms in the current macroeconomic environment – the theme of our workshop – is conducive to learning lessons that may be helpful to achieve all these objectives. As part of its evaluation work programme, the Committee has started to assess the ongoing impact of the Covid-19 pandemic on the banking system, which has been the first global test of the Basel III framework implemented after the Great Financial Crisis (GFC). In this regard, while the full effects of the pandemic on the banking system, including banks' asset quality, may be yet to emerge, debate has already started about whether or not the Basel III reforms implemented to date have performed as intended and the degree to which they will facilitate or hinder the economic recovery.

This debate is fully legitimate, and thus I would like to focus my remarks today on the evaluation of the effectiveness of Basel III reforms, which is also the focus of a panel discussion tomorrow. First, I will remind you why and how the Committee is conducting the evaluation. Second, I will briefly comment on the main outcome of some of the evaluations already performed by the Financial Stability Board (FSB) with the collaboration of the Basel Committee from the perspective of the banking system. Third, I will reflect on some of the preliminary lessons learned from the Covid-19 shock, in terms of both the observed resilience of the banking system and the functioning of some elements of the Basel III framework, including capital and liquidity buffers.