From Basel I to Basel III: Sequencing Implementation in Developing Economies

IMF Working Papers, June 14, 2019

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Canonical URL: From Basel I to Basel III: Sequencing Implementation in Developing Economies

Developing economies can strengthen their financial systems by implementing the main elements of global regulatory reform.
Effective prudential frameworks may require adapting international standards to account for:
- the sophistication and size of financial institutions,
- the relevance of different financial operations in their market,
- the granularity of information available,
- the capacity of supervisors.
Under a proportionate application of the Basel standards, smaller institutions with less complex business models would be subject to a simpler regulatory framework that enhances resilience without generating disproportionate compliance costs.
The paper provides guidance on how non-Basel Committee member countries could incorporate banks’ capital and liquidity standards into their framework.
The analysis builds on the authors’ experience providing technical assistance on—and assessing compliance with—international standards in banking supervision.

Adaptation factors to consider when implementing Basel standards:
- institution sophistication and size,
- market relevance of financial operations,
- information granularity,
- supervisory capacity.
Proportionate application:
- smaller, less complex institutions → simpler regulatory framework,
- objective → enhance financial-sector resilience while avoiding disproportionate compliance costs.
Specific focus areas:
- incorporation of banks’ capital standards,
- incorporation of liquidity standards,
- sequencing of implementation appropriate for non-Basel Committee member countries.

Tailor international Basel standards to local market and institutional characteristics rather than adopting a one-size-fits-all approach.
Apply a proportionate regulatory framework so regulatory complexity scales with institution complexity and systemic relevance.
Prioritize capacity-building in supervisors and information systems to support effective implementation of capital and liquidity standards.
Sequence implementation to allow non-Basel Committee member countries to incorporate core capital and liquidity requirements progressively, leveraging technical assistance and compliance assessments.