On 5 October 2022, the Basel Committee on Banking Supervision issued a report, Buffer usability and cyclicality in the Basel framework.
The report is the Basel Committee’s second report on the impact and effectiveness of the implemented Basel reforms and provides an in-depth examination of several questions regarding buffer usability and cyclicality of the Basel framework. It examines whether the Basel standards are operating in a way that enables the banking sector to dampen, rather than amplify shocks. A subsequent broader report will provide a more holistic evaluation of the reforms.
In the report the Basel Committee finds little evidence to suggest that reluctance by banks to use liquid asset buffers has affected their lending and market activity, given the short-lived nature of the liquidity pressures during the COVID-19 pandemic. Similarly, the analysis finds little sign of pro-cyclical effects on lending during the COVID-19 pandemic related to the introduction of the expected credit loss framework.
The report will inform the Financial Stability Board’s final report on exit strategies to support equitable recovery and address effects from COVID-19 scarring in the financial sector, which is to be submitted to the G20 Leaders’ summit in November 2022.
The Basel Committee has also published a newsletter on positive cycle-neutral countercyclical capital buffer rates. Among other things the Basel Committee supports and sees benefits in the ability of authorities to set a positive cycle-neutral countercyclical capital buffer rate on a voluntary basis. It also notes that circumstances vary across jurisdictions and that not all authorities consider a positive cycle-neutral countercyclical capital buffer to be appropriate in their jurisdiction.