Beyond the crisis: the Basel Committee’s strategic response

N. Wellink

Financial Stability Review, 2009, issue 13, 123-132

Abstract: A variety of factors led or contributed to the current financial crisis, including loose monetary policy; excessive financial market liquidity, leverage and maturity mismatch; weak risk management and underwriting standards; and poor incentives and regulatory gaps in some important segments of the fi nancial system. These weaknesses were amplified by certain procyclical dynamics in regulatory, accounting and risk management frameworks. The banking sector was at the centre of the crisis as the market stress led to an acute re-concentration of on- and off-balance sheet risks in banks, putting pressure on capital buffers, liquidity and credit availability. The weaknesses in the banking sector amplified the transmission of shocks from the financial sector to the real economy.Strengthening the banking sector and how it is managed and regulated is critical to a return to both nearand long-term financial stability. The Basel Committee’s programme to promote a more robust supervisory and regulatory framework for the banking sector has five key components: strengthening the regulatory capital framework; increasing banks’ liquidity buffers; enhancing bank governance, risk management and supervision; improving market transparency; and deepening cross-border supervisory cooperation for internationally active banks. Taken together, and reinforced through a macroprudential approach to regulation and supervision, these efforts will promote a banking sector that is more resilient to future periods of economic and financial stress and help reduce systemic risk.

Date: 2009
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