ABA Claims Basel Reforms Reveal International Regulator Shortcomings

The American Bankers Association (ABA) has called the ‘Basel III endgame reforms’, aimed at credit, trading and operational risk, “dated”, claiming they reveal shortcomings in the international standards settings process.

The ‘Basel III endgame reforms’ is a suite of rules that will change how much capital banks need to hold against credit, market and operational risk exposures. It is designed to make capital requirements more risk-sensitive while reducing variability of risk-weighted assets.

The reforms are spearheaded by the Basel Committee on Banking Supervision at the Bank for International Settlements in Basel, Switzerland.

The ABA has called the reforms the “most concerning” of the agendas being proposed by international banking regulators, accusing them of using the collapse of Silicon Valley Bank (SVB), and other banks, as a cover. The organization said the focus on credit, trading and operational risk meant liquidity and interest rate risk was ignored. These, it said, were a key factor in the collapse of SVB, which emphasized how “dated” the reforms are.

The ABA also highlighted that the reforms weren’t subject to the same rigorous examination as treaties or trade negotiations. In addition to this, the process for developing the reforms lacked the transparency in standards banks are used to under the Administrative Procedure Act, it claimed.

The ABA said: “Despite these shortcomings, international bodies are effectively setting U.S. domestic policy affecting our entire financial system. It’s inappropriate to ask American consumers and businesses to simply rely on regulators’ assurances about the future.”

The ABA has suggested a number of changes to the international standard setting process to avoid these issues, including requiring US financial regulators provide notice and comment before an international standards negotiation gets underway.

The Basel Committee on Banking Supervision has been contacted for comment.