Two truths and a myth in banking regulation

Speech by Pablo Hernández de Cos, Chair of the Basel Committee on Banking Supervision and Governor of the Bank of Spain, at the Eurofi High Level Seminar, Ghent, 23 February 2024.

BCBS speech  | 
23 February 2024

Good morning, and thank you for inviting me to speak at this Eurofi High Level Seminar. It's a pleasure to be in Ghent with you today.

Throughout the years, there has been no shortage of discussions at these Eurofi events about the work of the Basel Committee, and prudential regulation and supervision more generally. Take a cursory look back at previous conferences, and you will stumble upon sessions with titles such as:

  • "Impacts of Basel III on EU financial activities";
  • "Implementing Basel III in the EU: remaining challenges and timing";
  • "Basel III implementation in the EU: key political stakes"; and, as part of this week's event,
  • "Basel III implementation: global consistency challenges".

You would be forgiven for wondering whether we are in some sort of Basel III implementation Groundhog Day! In fact, Basel Committee member jurisdictions are making good progress with implementing the outstanding Basel III standards. Around a third of members have implemented all, or the majority of, the standards already, while two thirds plan to implement them by the end of this year. Most of the remaining jurisdictions expect to implement the outstanding standards by next year.

But it is also true that discussions around Basel III – including at these events – are often dominated by somewhat flimsy assertions. Many have been warning about the detrimental impact of Basel III for almost 15 years now. Yet the empirical evidence to date is overwhelmingly clear: the global banking system has become more resilient since the implementation of Basel III, and bank lending has expanded in most jurisdictions during this time period.

So we could all benefit from a reminder about why the Basel III standards are critical to safeguarding the resilience of the global banking system and supporting economic growth and the prosperity of households and businesses. I will therefore take a step back today to underline two recurring truths and to debunk a recurring myth when it comes to bank regulation and supervision.