• Basel Committee discusses Covid-19 risks to banking system, reviews provisioning practices and stresses importance of using capital and liquidity buffers.
• Reviews interim report evaluating impact of Basel framework during Covid-19.
• Agrees to hold public consultation on prudential treatment of cryptoasset exposures.

The Basel Committee met on 4 June 2021 to take stock of Covid-19 risks to the banking system and to discuss policy and supervisory initiatives.

What kinds of operational architectures could work for a #CBDC, and how do the private and the public sector interact in them? Some possible designs and their merits https://t.co/Vs3vLh06ay pic.twitter.com/ddxRvv2CEG

— Bank for International Settlements (@BIS_org) June 8, 2021

Cryptoassets

The Committee discussed market developments related to cryptoassets and the next steps in developing its prudential treatment for banks’ cryptoasset exposures. While banks’ exposures to cryptoassets are currently limited, the continued growth and innovation in cryptoassets and related services, coupled with the heightened interest of some banks, could increase global financial stability concerns and risks to the banking system in the absence of a specified prudential treatment.

The Committee agreed to hold a public consultation to seek the views of external stakeholders on the design of prudential treatment of banks’ exposures to cryptoassets. This builds on an earlier discussion paper and the responses received from a broad range of stakeholders, and ongoing initiatives under way at other global forums and standard-setting bodies. The consultation paper will be published this week.

Covid-19 risks and vulnerabilities

The uneven recovery and uncertain global economic environment means that banks and supervisors must remain vigilant to further risks and vulnerabilities. The Committee reiterates its guidance that banks should make use of Basel III capital and liquidity buffers to absorb shocks and maintain lending to creditworthy households and businesses. Members stressed that it was important for banks to strengthen their operational resilience in line with the recently finalised principles for operational resilience and risk. The Committee also discussed banks’ provisioning practices during the pandemic and will continue to monitor these practices and engage actively with international accounting and auditing standard-setting boards and audit firms. More generally, Committee members will continue to exchange information and monitor the implementation of temporary adjustments to the Basel framework to ensure that they are consistent with its overall objectives and unwound in good time.

Evaluation of post-crisis reforms

The Committee reviewed a report that provides a preliminary assessment of the impact of the implemented Basel III standards during the pandemic. The interim report forms part of the Committee’s broader work programme on evaluating its post-crisis reforms. The report will be published in July, and elements of its findings will be included in the FSB’s interim report to G20 Finance Ministers and Central Bank Governors on the financial stability lessons learnt from Covid-19.

Source: BIS