On 19 March 2019, the Basel Committee on Banking Supervision (Basel Committee) published a report on proportionality in bank regulation and supervision. The report summarises the responses received to the Basel Committee’s survey on the same topic by member jurisdictions and participants of the Basel Consultative Group.
The Basel Committee found that the majority of respondents to its survey apply proportionality measures in their jurisdictions. In most cases, such measures are applied to banks that represent a relatively small share of total banking assets in the relevant jurisdiction, although there is a fair degree of heterogeneity. Notwithstanding the positive application of proportionality, the Basel Committee did note hurdles in jurisdictions overseeing their proportionality regimes:
- balancing proportionality and comparability: in designing their proportionality requirements, some jurisdictions noted the trade-off between the benefits of tailoring requirements for different types of banks while also preserving comparability in banks’ regulatory ratios;
- balancing proportionality and competition: jurisdictions raised the difficulty of how to balance the appropriate differentiation of requirements to reflect the diversity of banks without inducing unwarranted competitive inequalities;
- determination of proportionality segments: some jurisdictions reported a challenge with identifying the appropriate determinants for proportionality segments (e.g. which quantitative metrics should be used, the balance between quantitative and qualitative measures, etc.); and
- arbitrage of thresholds and changes in banks’ business models: a few jurisdictions reported some challenges with ensuring that banks do not arbitrage the proportionality thresholds / segments to benefit from less onerous requirements.
Three tables summarising survey responses and types of proportionality measures can be found on pages 8 – 10 of the report.