On March 27, the EU’s Basel Committee (BC) announced a delay to the introduction of Basel III until January 1, 2023 and a delay to the accompanying transitional arrangements for the output floor until January 1, 2028 (the Announcement).
The delay arises from the development of the Covid-19 pandemic and the subsequent need for regulators to provide the relevant regulatory relief. With this delay, banks should have more time to focus on critical services for the real economy. The Announcement will also ensure that the banking system remains financially and operationally resilient.
The Announcement also defers the implementation date of the revised market risk framework and the revised Pillar 3 disclosure requirements by a year to January 1, 2023.
In an earlier statement published on March 20, the BC discussed how the Basel III framework can be used during stressful circumstances, such as the Covid-19 pandemic (the Initial Statement). The measures include the various Basel III buffers, such as capital, liquidity, capital conservation and countercyclical capital buffers and buffers for systemically important banks. They also include using the banks’ stock of high-quality liquid assets to meet liquidity demands. In the Initial Statement, the BC notes that capital resources to support the real economy and absorb losses should take priority at present over discretionary distributions. Many supervisors are already encouraging banks to make use of these tools, which provide a flexible approach to responding to the current circumstances.
The Announcement is available here.
The Initial Statement is available here.