Secretary General of the Basel Committee on Banking Supervision, Mr. Neil Esho, Delivers a Keynote Speech in Taiwan
2024-09-26
The Financial Supervisory Commission (FSC) invited Mr. Neil Esho, Secretary General of the Basel Committee on Banking Supervision (BCBS), to Taiwan to deliver a keynote speech at the Taiwan Academy of Banking and Finance. This event aimed to help Taiwan’s financial industry assess its risk-bearing capacity, continuously optimize bank capital structures, and improve asset quality.
This visit is significant as it has been 13 years since the FSC last invited a senior BCBS official. The last visit was by Deputy Secretary General Karl Cordewener in 2011. The interaction with the BCBS Secretary General is particularly valuable. The seminar was attended by 199 representatives, including senior executives from financial institutions, who greatly benefited from the discussions.
Mr. Esho ‘s keynote speech, titled “Bank Regulation and Supervision: the work of the Basel Committee and open issues” centers on the implementation of the Basel III framework and the BCBS's responses to emerging risk challenges.
1. Progress on Basel III Implementation: Mr. Esho outlined the progress of Basel III implementation, noting that BCBS members plan to fully implement the final standards of Basel III between 2024 and 2026. The initial standards (2010-2014) focused on capital quality, leverage ratios, and liquidity risk, while the final standards (2017-2019) enhanced the risk sensitivity of various risk-weighted assets. The implementation of Basel III has significantly improved the capital robustness and risk resilience of global banks, ensuring greater resilience under stress conditions.
2. Reflections on International Financial Market Turmoil: Addressing the banking incidents in the United States and Switzerland in 2023, Mr. Esho stated that the BCBS will continue to study the impact of financial digitization on the banking environment and further refine supervisory standards. These incidents highlighted that not only systemically important banks need focused supervision, but the potential asset-liability concentration issues of smaller banks could also have systemic implications. He emphasized that sound business strategies and a strong risk culture are central to banks’ ability to meet challenges.
3. Revised Core Principles for Effective Banking Supervision: In April 2024, the BCBS revised the Core Principles for Effective Banking Supervision, covering key issues such as operational resilience, macroprudential supervision, corporate governance, climate risk, and financial digitization. Mr. Esho noted that the Core Principles play a crucial role in ensuring bank stability and supervisory effectiveness, and that supervision should be proportionate to the systemic importance and risk profile of banks.
4. Challenges of AI and Big Tech: Mr. Esho pointed out that the application of AI could amplify existing risks or introduce new challenges, particularly in data governance and reliance on third-party providers. He stressed the importance of integrating AI risk management into existing frameworks and highlighted the need for AI explainability and transparency. Additionally, the interaction between banks and large tech companies requires attention to concentration risks and related supervisory issues.
Finally, Mr. Esho emphasized that the global banking system must build sufficient resilience as future shock sources are unpredictable. Effective supervision is crucial to ensuring financial stability. The banking industry will face technological and structural changes in the future, and both banks and supervisory authorities must be prepared.
The FSC stated that Taiwan has successively implemented Basel I, Basel II, and Basel III in 1992, 2007, and 2013, respectively, to enhance capital adequacy and strengthen financial resilience. Additionally, the FSC revised and issued the “Explanation and Forms for the Calculation Methods of Banks’ Capital and Risk Assets” on December 7, 2023, to be implemented on January 1, 2025, to align with international standards. The global economic and financial situation is changing rapidly, and although Taiwan’s banking industry has a robust capital structure, it must still cautiously respond to potential future challenges. The FSC will continue to promote risk management measures in line with BCBS standards and strengthen cooperation with international organizations to ensure the stable development of Taiwan’s financial system.
This visit is significant as it has been 13 years since the FSC last invited a senior BCBS official. The last visit was by Deputy Secretary General Karl Cordewener in 2011. The interaction with the BCBS Secretary General is particularly valuable. The seminar was attended by 199 representatives, including senior executives from financial institutions, who greatly benefited from the discussions.
Mr. Esho ‘s keynote speech, titled “Bank Regulation and Supervision: the work of the Basel Committee and open issues” centers on the implementation of the Basel III framework and the BCBS's responses to emerging risk challenges.
1. Progress on Basel III Implementation: Mr. Esho outlined the progress of Basel III implementation, noting that BCBS members plan to fully implement the final standards of Basel III between 2024 and 2026. The initial standards (2010-2014) focused on capital quality, leverage ratios, and liquidity risk, while the final standards (2017-2019) enhanced the risk sensitivity of various risk-weighted assets. The implementation of Basel III has significantly improved the capital robustness and risk resilience of global banks, ensuring greater resilience under stress conditions.
2. Reflections on International Financial Market Turmoil: Addressing the banking incidents in the United States and Switzerland in 2023, Mr. Esho stated that the BCBS will continue to study the impact of financial digitization on the banking environment and further refine supervisory standards. These incidents highlighted that not only systemically important banks need focused supervision, but the potential asset-liability concentration issues of smaller banks could also have systemic implications. He emphasized that sound business strategies and a strong risk culture are central to banks’ ability to meet challenges.
3. Revised Core Principles for Effective Banking Supervision: In April 2024, the BCBS revised the Core Principles for Effective Banking Supervision, covering key issues such as operational resilience, macroprudential supervision, corporate governance, climate risk, and financial digitization. Mr. Esho noted that the Core Principles play a crucial role in ensuring bank stability and supervisory effectiveness, and that supervision should be proportionate to the systemic importance and risk profile of banks.
4. Challenges of AI and Big Tech: Mr. Esho pointed out that the application of AI could amplify existing risks or introduce new challenges, particularly in data governance and reliance on third-party providers. He stressed the importance of integrating AI risk management into existing frameworks and highlighted the need for AI explainability and transparency. Additionally, the interaction between banks and large tech companies requires attention to concentration risks and related supervisory issues.
Finally, Mr. Esho emphasized that the global banking system must build sufficient resilience as future shock sources are unpredictable. Effective supervision is crucial to ensuring financial stability. The banking industry will face technological and structural changes in the future, and both banks and supervisory authorities must be prepared.
The FSC stated that Taiwan has successively implemented Basel I, Basel II, and Basel III in 1992, 2007, and 2013, respectively, to enhance capital adequacy and strengthen financial resilience. Additionally, the FSC revised and issued the “Explanation and Forms for the Calculation Methods of Banks’ Capital and Risk Assets” on December 7, 2023, to be implemented on January 1, 2025, to align with international standards. The global economic and financial situation is changing rapidly, and although Taiwan’s banking industry has a robust capital structure, it must still cautiously respond to potential future challenges. The FSC will continue to promote risk management measures in line with BCBS standards and strengthen cooperation with international organizations to ensure the stable development of Taiwan’s financial system.
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Update：
2024-09-30