This week Nout Wellink, chairman of the Basel Committee on Banking Supervision and President of the Netherlands Bank, highlighted concrete steps the Basel Committee is taking to strengthen the global regulation of the banking sector.
Wellink noted that supervisors must have a comprehensive strategy to deal with the crisis and its associated impact on banks. This is essential for the restoration of stability to the financial systems and economies.
The Basel Committees current and planned initiatives are intended to produce a more robust supervisory and regulatory framework for the banking sector. These efforts, which also are in support of the initiatives and recommendations of the Financial Stability Forum and the G20 leaders, include many steps.
These steps are: better coverage of banks risk exposures, including for trading book, securitization, and derivative activities; more and higher quality capital to back these exposures; countercyclical capital buffers and provisions that can be built up in good times and drawn down in stress; the introduction of a non-risk based measure to supplement Basel II and help contain leverage in the banking system; higher liquidity buffers; stronger risk management and governance standards; more regulatory focus on system-wide or macroprudential supervision; and greater transparency about the risk in banks portfolios.
Wellink said that a clear target for the future regulatory system that substantially reduces both the probability and severity of a crisis like the one we currently are working through needed to be established.
"By providing clarity about the future regulatory framework, we will help re-establish near term confidence, reduce the risk of competitive distortions and limit the degrees of uncertainty for the public and private sector," he added.