Business Regulation » EBA: Pandemic highlights need for timely implementation of Basel III

EBA: Pandemic highlights need for timely implementation of Basel III

Benefits of reform outweigh transitional costs

The pandemic has underscored the argument for timely implementation of regulations like Basel III.

“My view is that this pandemic is a reminder of the importance of a high-quality regulatory framework for a robust EU banking sector,” said José Manuel Campa, chairperson for the European Banking Authority (EBA), while giving an address to ISDA’s annual general meeting.

“The Basel Committee on Banking Supervision has reiterated unanimously their expectation for the full, timely and consistent implementation of all aspects of the Basel III framework. While we recognise that the pandemic has required the need for exceptional measures, the structural nature of the Basel III reforms will still be needed.”

However, the implementation of Basel III requires a global effort and Manuel Campa stressed the need to implement the framework in full without making deviations.

“Should we instead choose to deviate substantially from Basel, I think we risk undermining the overall framework.”

He added that as part of the reform, a recalibration of overall capital requirements in the EU is required, taking into account enhancements outlined in Basel III.

On the argument that the pandemic has made it more difficult to enact reform and that the transitional cost of the new framework would hinder recovery Manuel Campa was not persuaded.

“I will stress that the analysis of the macroeconomic impact of a reform clearly shows that the introduction of such a reform may come with modest transitional costs that will result in lasting gains, mainly due to a more robust financial sector that will contribute to attenuate future economic downturns, resulting in overall macroeconomic gain of implementing the reforms.”

Manuel Campa closed his speech by calling on the banking sector to help economic recovery by providing expertise and lending to viable firms but did add that insolvencies are to be expected.

“Viable firms must be allowed to continue. However, here will also be some firms will no longer be viable.

“Making the distinction between viable and non-viable firms will be a difficult balance and the financial industry should be ready to provide this expertise to facilitate this.”

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