How banks are preparing for capital reform in the shadow of COVID-19
Banks now have less than two years to prepare for the Basel 3 Reforms. Our third global survey looks at how ready banks are.
Like many regulatory initiatives, implementation of the Basel 3 Reforms (commonly known as Basel IV) has been significantly impacted by the COVID-19 pandemic. In March 2020, the regulators announced a one-year delay to the timetable, to permit banks more time to deal with the pandemic. However, regulators have made clear the Reforms have been postponed, not cancelled, and banks should work towards the current deadline for implementation of 1 January 2023.
In addition, the pandemic has resulted in banks reporting significant increases in impairment charges, as they deal with the fallout from the dramatic drop in economic activity. The next 12-18 months are likely to see that stress increase, as economies continue to struggle, and government and central bank help is reduced. Dealing with rising defaults at the same time as managing the Basel 3 Reform capital changes will be a real test of banks’ capabilities and strategic focus.