Véron, N. (2014) “The European Union Is the Global Laggard on Basel III – the Basel Committee found the EU “materially non-compliant” with Basel III“, Bruegel Institute, 08 December.
On Friday, December 5, the Basel Committee on Banking Supervision published its reports on the compliance of rules adopted last year in the European Union and in the United States with its global accord on banking regulation, adopted in 2010 and known as Basel III. As was to be expected, the Basel Committee found the EU “materially non-compliant” with Basel III, while the US was found “largely compliant” and all other jurisdictions reviewed so far were found “compliant.” The EU, which often claims leadership on championing global financial standards, thus finds itself the global laggard on this key plank of the financial regulatory agenda. But moving towards better compliance with the Basel framework remains in the EU long-term interest. This can be achieved both in the short term through appropriate action by the European Central Bank (ECB), and in the longer term through changes in the applicable EU legislation.
The two Basel Committee reports, published simultaneously on the EU and the US, are part of a multi-year initiative which the Basel Committee calls its Regulatory Consistency Assessment Programme (RCAP). The corresponding publications started in October 2012 with preliminary assessments of the EU and US, on the basis of draft rules at the time in both jurisdictions, as well as an assessment of Japan which was found compliant. Since then, the Committee has published successive RCAP reports on Singapore (March 2013), Switzerland (June 2013), China (September 2013), Brazil (December 2013), Australia (March 2014), and Canada (June 2014), all of which were also found compliant with Basel III. Under the Committee’s current work schedule, this will be followed by assessments of Hong Kong, Mexico, India, South Africa, Saudi Arabia and Russia in 2015, and of Argentina, Turkey, Korea and Indonesia in 2016. It should be noted that the jurisdictions already assessed under the RCAP cover a dominant share of the global banking system, including all of the thirty groups currently classified by the Financial Stability Board as Global Systemically Important Banks (of which 14 are headquartered in the EU, 8 in the US, 3 in China, 3 in Japan, and 2 in Switzerland). Thus, even if some of the reports still to come find other jurisdictions to be materially non-compliant or even “non-compliant” (the worst grade), it won’t change the EU’s status as global laggard, followed by the “largely compliant” US, among the world’s most important banking jurisdictions.
Relevant posts:
- Goldstein, M. (2014) “The 2014 EU-wide bank stress test lacks credibility“, VoxEU Organisation, 18 November.
- Korte, J. & Steffen, S. (2014) “A ‘sovereign subsidy’ – zero risk weights and sovereign risk spillovers“, VoxEU Organisation, 07 September.
- IMF (2013) “Italy: Detailed Assessment of Observance of Basel Core Principles for Effective Banking Supervision“, International Monetary Fund, Country Report No. 13/354, December.