How to future-proof global standard setters in banking

Source abstract

Abstract This article looks at the evolution of global standard setting for banks by the Basel Committee on Banking Supervision (or Basel Committee), and the challenges around the implementation of the last major package of prudential standards after the 2008 Global Financial Crisis, focusing on the last instalment of the standards called Final Basel III. While the political steer for Final Basel III was for minimal regulatory capital impact, regional and private data analyses reported much higher capital increase. The article argues that this high impact prompted concerns by industry and some policymakers, and led to local implementation with adjustments, for example in the EU and UK. The article also considers that divergent national implementations of Basel Committee standards reflect democratic accountability and local economic sensitivities. At the same time, this approach undermines the credibility of global standards and casts doubt on the future ability to undertake major regulatory reforms. The article is topical, because it looks at the case of specific banking standards against a background of broader questions about the value of global cooperation. In the case of the Basel Committee, these challenges do not come from disruptive political forces but from traditional political players who favoured local adjustments over adherence to global rules, in order to lessen the impact on their economies. The article calls for more data transparency, post-finalization feedback mechanisms, and openness to targeted adjustments to preserve global standard-setting credibility.