The Basel Committee at 50

Speech by Mr Agustín Carstens, General Manager of the BIS, at the 23rd International Conference of Banking Supervisors, Basel, 24 April 2024.

Introduction

Good evening, and a warm welcome to Basel and to this special edition of the International Conference of Banking Supervisors (ICBS), which marks the Basel Committee's 50th anniversary.

Let me start by thanking all former chairs, members and current members of the Basel Committee and its oversight body, the Group of Central Bank Governors and Heads of Supervision, that are with us today. Your contributions to the work of the Committee have gone a long way towards strengthening the resilience of the global banking system and safeguarding financial stability.

I should also take this opportunity to extend my particular thanks to Pablo Hernández de Cos. Pablo, this will be your last ICBS as Chair of the Committee. You have played a pivotal role in leading the work of the Committee since 2019. You were quick to undertake a strategic review of the Committee following the finalisation of Basel III to ensure that it was effective in anticipating emerging risks and vulnerabilities to the banking system.

We saw the fruits of this review in the Committee's prompt and effective responses to the series of shocks affecting the financial system over the past few years, including the Covid-19 pandemic, geopolitical developments and last year's banking turmoil. You also laid the foundations for the Committee's work on key structural changes affecting the global banking system, including the digitalisation of finance and climate-related financial risks. And you helped pivot the work of the Committee towards strengthening supervision.

So please join me in recognising and thanking Pablo for his leadership of the Committee.

The BIS and the BCBS: two sides of the same coin

As many of you know, the ICBS is held every two years in different locations. It was perhaps never a question as to where this special edition of the ICBS would be held, given the central role that the BIS and Basel played in establishing the Committee in 1974.

Since then, our symbiotic relationship has gone from strength to strength.

The G10 governors at the time took a wise decision to create the Committee, though I doubt very few of them envisaged that it would still be around 50 years later or that it would have played such a central role in the global financial system.

Throughout its history, the Committee has played a critical role in supporting the BIS's mission to support central banks' pursuit of financial stability through international cooperation. We have seen that time and again over the past 50 years, whether it was through the 1975 Concordat on the supervision of banks' foreign establishments to today's flagship Basel Framework and Basel Core Principles. Indeed, these are viewed today as the gold standard for bank prudential regulation and supervision and have been adopted in over 120 jurisdictions. You have set the benchmark for other global standard setters and forums.

In many ways the Basel Committee has become synonymous with its host city and the BIS. It is therefore not a surprise to see that, when typing the word "Basel" in search engines, the autocomplete function often suggests "Basel III" or variants of it as one of the top suggestions! (Although, somewhat ominously, I see that "Basel IV" now also appears!). Though when I asked ChatGPT what Basel is known for, it made no mention of the Basel Committee. Rather it focused on art, culture, the pharmaceutical industry and the Basel Fasnacht. Clearly, ChatGPT has some way to go before we can rely on it.

The BIS has long contributed to and supported the Committee's mandate to strengthen the regulation, supervision and practices of banks worldwide to enhance global financial stability.

In addition to hosting the Committee and its Secretariat, the BIS has provided the analytical bedrock for the Committee's work. Indeed, with the BIS ranked as the top research institution in the field of banking, its contributions to the Committee have helped ensure that the Committee's work is grounded in both conceptual and empirical research.¹ This includes, for example, the framework for assessing the long-term economic impact of higher capital and liquidity requirements and the support provided by the BIS to the Committee's comprehensive data collection framework. And of course, the BIS has, and continues to be, a strong advocate for macroprudential policies.

The BIS and Committee also jointly set up the Financial Stability Institute (FSI) over 25 years ago. Since then the FSI has been an important ally in promoting the implementation of the Committee's standards and guidelines and in improving and strengthening financial systems. The FSI Connect e-learning platform has been an invaluable source of training for central banks and supervisory authorities, while its publications have contributed to the design, dissemination and implementation of sound regulatory and supervisory policies. And I'm sure that many of us have benefited tremendously from the various outreach events the FSI has held.

Life starts at 50: evolving in an ever-changing world

Just like the BIS, the Committee has constantly evolved in response to structural changes and broader forces shaping the global financial system. As I represent an institution that is celebrating its 94th anniversary this year, my humble advice to you this evening is to make sure that you continue to innovate. Do not take your past successes for granted, nor assume that you can continue with a "business as usual" mindset.

To that end, and in the spirit of encouraging a discussion at this event, let me raise three questions that I think merit reflection.

First, how can we best contribute to a safer and more integrated global financial system? In particular, how can we promote consistency in the implementation of global standards and guidelines by Committee member jurisdictions? The track record of the Committee has been broadly positive to date, but it is important that we maintain this momentum, most notably by implementing the outstanding Basel III standards in full and consistently. In addition, the Committee should remain ambitious and develop further guidance on emerging regulatory and supervisory issues and challenges such as those stemming from the recent banking turmoil or from climate developments. To that end, does the Committee need to consider additional tools or approaches to ensure this outcome? 

Questions have occasionally been asked about the way in which the Committee develops its standards. Pablo rightly noted this morning that the Committee pursues an extensive and transparent approach to consulting on its proposals and seeks the views of a wide range of stakeholders. So I would encourage the Committee to continue to build on this approach. Safeguarding financial stability is a global public good, and one that can, and should, involve all interested participants.

Second, despite the progress made by the Committee on banking-related reforms, there continues to be insufficient momentum globally in addressing the risks posed by non-bank financial institutions (NBFIs). Therefore, do we need to start thinking outside the box? For example, and I say this purely to stimulate a debate, is there a need to set up a Basel Committee on Non-Bank Supervision (even though BCNBS may be a bit of a mouthful to pronounce) to oversee and mitigate risks from NBFIs that do not fall within the mandate of existing standard setting bodies' and global forums? Or should more be done to further safeguard the banking system from its many direct and indirect interconnections to NBFI, if work on the latter continues to lag?

Third, with the ongoing digitalisation of finance, should the Committee and its members spend more time thinking about how they can use technological innovation to meet their mandates? While we have rightly focused most of our attention on the risks and opportunities of digitalisation for banks, we should not forget about the promises and challenges that it presents for central banks and supervisors. Let me highlight two particular issues. First, how can we use innovation to continue doing the same things but better? Second, and more fundamentally, how can regulation and supervision adapt as technology changes the nature of banking? For example, as we saw during last year's banking turmoil, the increasing speed of payment settlements can affect banks' liquidity management. How should regulation and supervision capture these dynamics? How can we ensure that supervision is forward-looking, intrusive and thorough in assessing structural trends affecting the banking system, business model sustainability and banks' corporate governance and culture?

The BIS Innovation Hub has already pursued several projects aimed at using technology to strengthen supervision. I would encourage the Committee to further consider whether additional projects would assist it in meeting its mandate.

Conclusion

In conclusion, the Committee should be proud of its many achievements over the past 50 years, and for its unambiguous role in strengthening the resilience of the global banking system during this period.

The next 50 years will no doubt bring many new challenges to the Committee. But I am confident that it will rise to the occasion as long as its members retain their commitment to cross-border cooperation. And the BIS will continue to be by its side and to support and promote the work of the Committee.

I invite you all to join me in a toast to the Basel Committee's 50th anniversary, and long may it continue to perform the critical function that it plays within the global financial system.

¹ Based on the Research Papers in Economics (RePEc) ranking as of March 2024. See here.