FedFin Assessment: Basel Lays Big Plans for Basel V
As we noted yesterday, the Basel Committee’s October meeting concluded not only with plans for new disclosure consultations, but also a report on lessons learned from the 2023 crisis. We have long considered the “end-game” standards so substantive as to constitute Basel IV; now, as this report details, Basel is laying plans for Basel V via new liquidity, interest-rate, capital, and structural changes to the current construct. We thus focus on the supervisory and regulatory action steps Basel posits as necessary responses to the financial-market volatility sparked earlier this year by SVB, SBNY, FRC, and CS’s failures. While Basel states that none of its recommendations necessarily presages near-term global standards, they warrant review not only as likely precursors to at least some new proposals, but also as guides to what is top of mind for national regulators beyond finalizing end-game capital rules and dealing with home-country matters such as resolvability. If Basel proposes only some of the regulatory revisions it has in mind or, as the Fed clearly intends, the U.S. does so ahead of time, larger banks will face significant revisions to the LCR and NSFR, capital add-ons for interest-rate outliers, and express ring-fencing to prevent a CS repeat – i.e., a case in which the parent company met applicable standards but key subsidiaries fell far short.