Capital and liquidity rules written by the Basel Committee were put into effect by a host of member jurisdictions over the six months to September, the organisation’s latest progress report shows.

Of the 11 key capital and liquidity standards set by the committee, eight had been issued as final rules in more than half of the 28 jurisdictions it represents by end-September. At end-March, just one standard had reached this level of adoption.

The standard on interest rate risk in the banking book has been adopted as a final rule by 20 members, up from just nine in Q1; the large exposures framework by 21, up from 11; the net stable funding ratio by 22, up from 13; and the 2014 standard for defining leverage exposure by 26, up from 16.

But the revised market risk framework, known as the Fundamental Review of the Trading Book (FRTB), has only been put out as a final rule by 10 jurisdictions, the same number as have put into effect in the leverage buffer and the revised 2017 standard for defining leverage exposure. 

What is it?

The Basel Committee issues semi-annual progress reports on the adoption and implementation of agreed banking reforms. The most recent publication is the 17th such report. The series began in October 2011.

Why it matters

There’s no point in putting together a common rulebook for banks if not every country that signs up plays by them. If only some Basel jurisdictions implement the standards in full, then wily firms could shift businesses to those countries that haven’t to escape capital and liquidity constraints.

This is why the Basel Committee conducts periodic progress reviews. Getting members to issue final rules is only one half of the battle, though. The other is ensuring these final rules actually conform to the letter of the agreed standards. If not, then gaps in implementation could emerge, again allowing banks an opportunity to engage in regulatory arbitrage.

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