In a speech at the Eurofi Financial Forum in Copenhagen, Erik Thedéen, Chair of the Basel Committee on Banking Supervision and Governor of Sveriges Riksbank, urged jurisdictions to fully implement the Basel III reforms and warned that diluting prudential standards could erode banks’ long-term resilience and competitiveness.
Regulation as a source of strength
Thedéen challenged the notion that capital and liquidity requirements are a drag on profitability, saying: “Resilience is more than a shield. It is a source of competitive strength for banks.” He argued that well-capitalised and liquid banks are better able to lend during stress, win new business when others retreat and act as counterparties of choice “when trust is a scarce commodity”.
He noted that “there is now unquestionably strong empirical evidence that it is strong banks – those that are well capitalised and have robust liquidity levels – that can support the wider economy and contribute to its medium-term prosperity.”
Thedéen emphasised that regulatory capital is not idle: “Capital is a powerful funding tool for banks… It provides banks the confidence and stability to grow and lend to households and businesses.” Similarly, liquidity buffers “are the fuel that allows banks to meet obligations, seize opportunities and support clients in all market conditions.”
Call for full Basel III implementation
Thedéen cautioned that the effectiveness of Basel III cannot be assessed until it is fully implemented. “We cannot fairly evaluate reforms that have not yet been fully implemented. The first step towards any honest assessment is for all members to implement Basel III in full and consistently,” he said.
While acknowledging the need for policymakers to remain “humble and open-minded” about the impacts of regulation, he warned that “for some, diluting standards might seem attractive in the short term, but history shows that such a move inevitably erodes the very advantage that well run banks have earned over time.”
He confirmed that the Committee is assessing how elements of the Basel Framework performed during the 2023 banking turmoil as part of its ongoing evaluation work programme.
Supervision as a strategic asset
Thedéen also underlined the value of strong supervision alongside regulation, describing it as “a trusted second set of eyes in assessing risks and banks’ viability… free from groupthink and insulated from short-term commercial temptations.”
“Supervision should not be seen as an ‘us versus them’ relationship… Banks should look to supervisors as a partner in resilience,” he said, noting that supervisors provide independent challenge, early warnings and insights from across jurisdictions.
Thedéen revealed that the Committee is developing “a suite of practical tools to support supervisors in their day-to-day oversight of liquidity risk, interest rate risk in the banking book, the assessment of the sustainability of banks’ business models and the importance of effective supervisory judgment.” An update on this work will be published later this year.
Guarding against fragmentation
Concluding, Thedéen warned against regulatory divergence, stating: “Banking is global. Risks can be transmitted across borders instantly. If jurisdictions fragment their frameworks, we invite a race to the bottom, which is in no one’s interest.”
He said the Group of Governors and Heads of Supervision had “unanimously reaffirmed its expectation to implement Basel III in full and consistently, and as soon as possible,” adding: “Global standards like those set by the Basel Committee help well run banks operate across borders with confidence… If finance is global, stability must be too.”
What should Compliance teams do now?
Compliance teams should immediately reassess their Basel III readiness by identifying any gaps in capital, liquidity, IRRBB, and liquidity risk management, ensuring alignment with global rather than just local standards. They should also strengthen supervisory engagement by positioning compliance and risk functions as collaborative partners and demonstrating how supervisory feedback is embedded into stress testing, resilience planning, and business model assessments.
Finally, for cross-border operations, teams must monitor for regulatory divergence and establish early warning mechanisms to anticipate and mitigate risks of fragmentation, regulatory arbitrage, or inconsistent prudential requirements.
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