Basel Committee publishes report on 2023 banking turmoil, agrees to consult on climate and cryptoasset disclosures, and approves annual G-SIB assessment

The Basel Committee on Banking Supervision held a meeting in Basel on 4-5 October 2023, to assess recent developments and risks in the global banking system and discuss various policy and supervisory initiatives.
One significant point of discussion was the risks and vulnerabilities facing the global banking system. Higher interest rates, while potentially beneficial for banks‘ net interest margins and income, can also expose vulnerabilities that have emerged during an extended period of low rates. These vulnerabilities include the risk of credit losses due to rising debt service ratios for borrowers and the sensitivity of bank depositors to interest rate changes. Additionally, banks have exposure to the NBFI sector through various channels. It was emphasized that banks and supervisors need to remain vigilant and ensure operational resilience.
The Committee also reviewed the 2023 banking turmoil, which was described as the most significant system-wide banking stress event since the Great Financial Crisis. In response to this turmoil, the Committee published a report that assessed its causes, regulatory and supervisory responses, and initial lessons learned. Subsequent initiatives will prioritize strengthening supervisory effectiveness and assessing the performance of specific features of the Basel Framework during the crisis.
The annual assessment exercise for G-SIBs was approved by the Committee, and the results will be submitted to the Financial Stability Board for the publication of the 2023 G-SIB list.
Regarding climate-related financial risks, the Committee agreed to consult on a disclosure framework for banks‘ exposures to these risks under Pillar 3. A consultation paper outlining this framework is scheduled for publication in November.
In the realm of cryptoassets, the Committee will seek feedback on disclosure requirements related to banks‘ cryptoasset exposures, complementing the prudential standard issued in December 2022. The consultation paper on this topic will be released soon.
Lastly, digitalization’s impact on finance was discussed, including trends like „Banking as a Service“ provided by non-bank intermediaries. The Committee plans to publish a report on digitalization’s developments and their implications for banks and supervisors by the middle of the next year.
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In more detail, concerning the 2023 banking turmoil, the aforementioned Report on the 2023 banking turmoil analyses a substantial crisis in the global banking system. It was the most significant crisis since the 2008 financial crisis, impacting banks, financial markets, and confidence across multiple jurisdictions. The report delves into the causes, regulatory responses, and early lessons learned from this turmoil.
Key issues highlighted include flaws in bank risk management practices, inadequate governance, and unsustainable business models. Effective supervision emerges as a critical factor, emphasizing the need for prompt actions, resource allocation, and cross-border cooperation.
The importance of robust regulatory standards, such as Basel III, is reiterated, emphasizing consistent implementation and a balanced approach between Pillar 1 and Pillar 2 regulations.
The report underscores the significance of prudent risk management, strong supervision, and sound regulatory standards in safeguarding the global banking system’s stability. Follow-up initiatives are planned to enhance supervisory effectiveness and evaluate the Basel Framework’s performance during the crisis.