After assessing Basel III’s relevance, advantages, and challenges for emerging markets and developing economies (EMDEs), this CGD Task Force has advanced specific recommendations for Basel III that merit adoption or adaptation by financial authorities in EMDEs. The Task Force also included recommendations for the Basel Committee and other multilateral organizations in its new report.
Following the 2008 global financial crisis, international standard-setting bodies—especially in Europe—under the leadership of the G20 set up a comprehensive reform agenda for improving the regulatory framework governing the activities of banks and other financial institutions. From this agenda, recommendations from the Basel Committee on Banking Supervision (BCBS) under Basel III stand out due to the wide-ranging scope of the proposed regulatory reforms. This includes capital and liquidity requirements as well as limits on leverage and specific regulatory treatment for financial institutions that, due to their size, complexity of operations, and interconnections with other institutions, can pose greater risks to the entire financial system.
A slideshow of photos from Task Force meetings
Click the photo above to scroll through photos from a meeting of the Task Force and two CGD-G-24 roundtable discussions at the IMF.
While these regulatory reforms have significant stability benefits for both advanced economies and EMDEs, Basel III recommendations have been calibrated primarily for advanced countries. While the adoption of these reforms is optional for the large majority of EMDEs, many of them are in the process of adopting it. They do so because they see it as in their long-term interest, but at the same time the new standards pose new risks and challenges. Given the specific characteristics that distinguish EMDEs from advanced economies, a differentiated approach to make Basel III work in EMDEs is needed. As such, the Task Force’s analysis and recommendations build on three principles: (i) minimize the negative spillover effects of Basel III adoption in advanced countries; (ii) aim for proportionality in applying standards; and (iii) minimize the trade-offs between financial stability and financial development.
The Task Force’s final report uses a conceptual framework that combines the specific characteristics of EMDEs with the aforementioned principles to assess the implications of Basel III for EMDEs and provides recommendations for international and local policymakers to make Basel III work for these economies. Specifically, the recommendations address: (1) the spillover and level field effects arising from the implementation of Basel III in advanced economies, including by affiliates of foreign banks operating in EMDEs, and (2) the potential unanticipated effects on financial stability, financial inclusion, and deepening of local financial systems from the implementation of Basel III by EMDEs themselves.
You can read the background analysis and recommendations of the report in the following blog posts:
Six Recommendations for Making Basel III Work for Emerging Markets and Developing Economies
Basel III & Unintended Consequences for Emerging Markets and Developing Economies - Part 1: Cross-border Spillover Effects
Basel III & Unintended Consequences for Emerging Markets and Developing Economies - Part 2: Effects on Trade Finance
Basel III & Unintended Consequences for Emerging Markets and Developing Economies - Part 3: An Unlevel Playing Field Between Domestic and Foreign Banks Might Increase Governments’ Funding Costs
Basel III & Unintended Consequences for Emerging Markets and Developing Economies - Part 4: Challenges on Infrastructure and SME Lending
Basel III & Unintended Consequences for Emerging Markets and Developing Economies - Part 5: Effects on Capital Market Development and the Real Economy
|G24/CGD Roundtable 1 & 2||Basel III in EMDEs|
|BIS||Application of Proportionality to International Regulations|
|Federal Reserve-IMF||Is Basel III Enough?|
|Bank of England||Making Basel III Work for EMDEs|
|U.S. Government Accountability Office||Financial Modernization and Regulatory Reform|
|Committee of African Banking Supervisors||Making Basel III Work for EMDEs|
|Central Bank of Chile||Basel III in the Context of the Macro-Prudential approach|
|Central Bank of South Africa||Implementation of Basel III and Proportionality in EMDEs|
|Superintendent of Banks of Ecuador||Implementing Basel III in EMDEs|
|IDB-BIS||Workshop on Cross-border Flows and Regulatory Frameworks|
|Cambridge University||Discussion of the report: Making Basel III Work for EMDEs|
|Milken Institute||Roundtable on Basel III and SDGs|
|Banco de la Ciudad, Argentina||Conference on International Financial Regulation and the Growth of Banking and Non-Banking Systems|
The Task Force is led by CGD senior fellow Liliana Rojas-Suarez and co-chair Thorsten Beck, professor of banking and finance at Cass Business School in London. The Task Force comprises leading experts from around the world with deep knowledge of Basel III, financial stability, and economic development.
Task Force Members
Click here for full biographies.
Liliana Rojas-Suarez (Co-chair)
Senior Fellow and Director of the Latin America Initiative, Center for Global Development.
Thorsten Beck (Co-chair)
Professor, Cass Business School; Research Fellow, Centre for Economic Policy Research (CEPR) and CESifo
Jose De Gregorio
Professor, University of Chile and Former Governor, Central Bank of Chile
Maher Sheikh Hasan
Deputy Governor and Vice Chairman of the Board of Directors, Central Bank of Jordan
Senior Fellow, Peterson Institute for International Economics and Former Governor, Central Bank of Ireland
Deputy Governor, Bank of Uganda
Linah Kelebogile Mohohlo
Former Governor, Bank of Botswana
Vice President, Equitable Growth, Finance and Institutions (EFI), World Bank Group
Principal Advisor, Research Department, Inter-American Development Bank
Distinguished Fellow, Asia Global Institute, The University of Hong Kong
Maria Soledad (Sole) Martinez Peria
Chief of the Macro-Financial Division, International Monetary Fund Research Department