Important new rules on bank solvency delayed

Joe McGrath |

Banks and lending institutions have been advised that forthcoming new rules on how they measure their financial strength have been pushed back by a year, due to the ongoing Covid-19 pandemic.

The Basel Committee on Banking Supervision has announced that the new capital standards under the forthcoming Basel IV regime will now not be implemented until 1 January 2023, a year later than originally planned. The standards body has also added a year to the timetable for the transitional arrangements for the output floor, which has now been set at 1 January 2028.

“Today’s measures will free up operational capacity for banks and supervisors as they respond to the economic impact of Covid-19,” the Basel Committee’s chairman, Pablo Hernandez de Cos, said in a statement to markets.

“The Committee will continue to closely monitor the impact of Covid-19 on banks and supervisors and respond as necessary in coordination with the Financial Stability Board and other standard-setting bodies on cross-cutting issues.”

Basel IV was designed to build upon the solvency and capital adequacy measures implemented under Basel III, which came in after the global financial crisis. The new rules will require many banks to review their IT systems for forecasting how resilient their financial position would be in the wake of a market crash.

Bank compliance teams had already started to review how appropriate their existing tech systems were, given that Basel IV requires the larger institutions to be able to give a complete snapshot of their financial position at any time during the trading day.

In an announcement, the Basel Committee said it did not anticipate that the revised implementation timeline would dilute the capital strength of the global banking system. The committee said it would instead offer banks “additional capacity” to respond.

The move comes as some European banks have moved to protect their risk exposures in recent weeks. Many lenders have been in the spotlight for slashing the maximum loan-to-value on new mortgage loans , or for seeking personal guarantees from company directors on new loans to businesses.

In the UK, banks offering the latter have been criticised by financial commentators, given that the UK government has said it will underwrite 80 per cent of the value of commercial loan requests in light of the unfolding global pandemic.

The Basel Committee is the primary policymaker for global standards for the prudential regulation of banks.