14 TRADE & FINANCE
Improving the quality of banking supervision worldwide in the post-reform world
Stefan Ingves , Chairman of the Basel Committee on Banking Supervision and Governor of Sveriges Riksbank
Since the onset of the global financial crisis , the regulatory community have initiated a series of significant reforms . The Basel III framework constitutes a central component of the G20 regulatory reforms that have followed . The aim has been to develop a regulatory framework that increases the resilience of the banking system . In turn , this will reduce the probability and mitigate the impact of future financial crises , setting the stage for strong , sustainable and balanced growth .
The Basel framework comprises three Pillars . Pillar 1 sets minimum capital ( and now liquidity ) requirements . Pillar 2 is the supervisory review process . And Pillar 3 promotes market discipline through public disclosure . All three pillars have been strengthened significantly through a variety of measures .
With the reform agenda largely completed , it is tempting to think that the hard work is over . But , in fact , it is only beginning . First , we must ensure that the reforms are implemented by both authorities and banks as they were intended , which the Committee is doing through its Regulatory Consistency Assessment Programme . Second , we must continue to strengthen our oversight and supervision as banks incorporate the new regulatory requirements into their risk management frameworks . In this respect , banks and supervisors both have a role to play .
Pillar 1 : stronger minimum requirements for regulatory capital and liquidity
Basel III responds to the risk management and supervisory challenges observed during the crisis . The framework seeks to improve banks ’ resilience to a range of shocks . It also provides supervisors with the necessary tools to address weaknesses identified in individual banks and oversee the health of the broader financial system .