Basel III Update: The Real Reason for Delayed Compliance Explained by AWAKE IN 3D, 17 MAY

 Basel III Update: The Real Reason for Delayed Compliance Explained

On May 15, 2024
By Awake-In-3D

Continued delays in adopting Basel III regulations prompt skepticism about banks’ willingness to disclose financial risks, despite reassurances that progress is being made.

In This Article

• Persistent Delays in Basel III Implementation
• Crypto Asset Regulations: A Convenient Excuse?
• Bank Transparency and the Hesitance to Disclose Risk Ratios
• Broader Implications for the Banking Sector

Introduction

The ongoing postponement of Basel III compliance raises concerns about banks’ commitment to financial transparency.

Despite frequent assurances from the Basel III Governing Body, the reality suggests that full compliance is far from imminent.

The recent focus on crypto asset regulation appears to be another tactic to delay the inevitable: public disclosure of banks’ risk leverage ratios.

Persistent Delays in Basel III Implementation

Basel III regulations are critical for ensuring the stability of the global banking system. Banks must measure and report financial risks accurately, using approved methods to calculate their risk-weighted assets.

However, the journey towards full compliance has been anything but smooth.

The Basel III Committee has consistently emphasized the importance of implementing these regulations. Yet, deadlines continue to be pushed back, with many jurisdictions now aiming for completion this year or the next. This pattern of delay raises questions about the underlying reasons for the slow progress.

Crypto Asset Regulations: A Convenient Excuse?

The latest hurdle in Basel III compliance involves new rules for managing crypto asset exposures. Originally set for implementation by January 1, 2025, these rules have now been delayed to January 1, 2026.

Claims are that this postponement is necessary to develop a stable regulatory framework.

However, this explanation seems more like a convenient excuse than a genuine obstacle. The classification of crypto assets into two groups, each with different regulatory treatments, adds complexity.

Still, it should not justify such significant delays. The focus on crypto assets might be diverting attention from the real issue: banks’ reluctance to reveal their true financial risks.

Banking Transparency and the Hesitance to Disclose Risk Ratios

A critical component of Basel III compliance is the public disclosure of risk-weighted assets. This transparency is vital for regulators and the public to assess a bank’s risk profile accurately.

However, many banks appear hesitant to disclose their risk leverage ratios, likely fearing the exposure of their financial vulnerabilities.

This reluctance suggests that banks may have more to hide than they are willing to admit. Full transparency could reveal that many institutions are not as financially stable as they claim.

This fear of public scrutiny is, I believe, a significant factor behind the persistent delays in Basel III compliance.

Basel III Compliance Dashboard for US Banks: Notice the yellow boxes (delays) are in credit/market risk and disclosure categories. SOURCE: Basel III Committee/BIS

Broader Implications for the Banking Sector

The ongoing delays in Basel III compliance and the hesitance to disclose risk ratios have broader implications for the global banking sector.

While the Governors and Heads of Supervision (GHOS) continue to express commitment to these regulations, the repeated postponements indicate a lack of genuine progress.

The introduction of crypto asset regulations adds another layer of complexity, but it should not serve as a primary reason for delay.

The lack of full compliance and transparency undermines the stability of the global financial system. The banking sector’s credibility depends on its willingness to embrace transparency and accountability.

The Bottom Line

The repeated delays in Basel III compliance highlight a concerning trend: banks’ reluctance to disclose their financial risks.

While GHOS maintains that progress is being made, the reality suggests otherwise.

The focus on crypto asset regulations appears to be more of a distraction than a legitimate obstacle. The global banking sector must confront its transparency issues head-on to ensure financial stability and restore public confidence.

Contributing source: https://www.bis.org/press/p240513a.htm

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