In a recent article published in the ABA Banking Journal, the American Bankers Association's Hugh Carney argues that the "Basel Endgame" process in the US has revealed the need for more transparency and inclusivity in international standard-setting.
The Basel Endgame proposal, which aims to strengthen bank resilience through increased capital requirements, faced criticism from diverse sectors concerned about its economic impact before regulators scaled it back significantly in September last year. Agricultural groups warned of disruptions to hedging and rising food costs. Small businesses feared reduced credit availability and higher borrowing costs. Social justice organizations highlighted risks to affordable housing. And utility companies anticipated increased expenses for essential services. "The breadth of the [feedback] raises a crucial question: Why weren't these voices heard earlier?" Carney writes.
The Basel Accords are issued by the Basel Committee on Banking Supervision (BCBS), the primary global standard setter for prudential regulation. The BCBS, Carney explains, has faced criticism for its opaque processes, where key decisions are often made before public feedback is sought. "There is merit in the search for international regulatory harmony, but not at such great potential cost to the public interest," Carney contends.
"U.S. regulators, deeply involved in these negotiations, often treat international agreements as a fait accompli, implementing them domestically with limited opportunity for significant revision," he writes. By the time these rules are made available for public comment, they are already nearly finalized. This leaves domestic interests sidelined until it's too late to shape outcomes, Carney argues.
He calls upon regulators to bridge this gap, prioritizing transparency, inclusivity, and accountability in their engagement with international standard-setters. First, Carney urges regulators to issue advanced notices of proposed rulemaking before they engage in international negotiations. Regulators should also actively solicit input from nonbank stakeholders to ensure that "international standards align more closely with domestic economic realities," he writes. And, finally, the legislature should play a more active role in overseeing this engagement, he argues.
"The banking system exists to serve the economy, so effective regulation must account for the broader economic and social context in which banks operate," Carney concludes. "It's time for regulators to chart a better way forward, not only concerning bank capital, but throughout the Basel process."
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