The Eastern Caribbean Central Bank (ECCB) is committed to implementing certain aspects of the Basel II and Basel III capital adequacy frameworks (Basel II/III), given that the current Basel I capital framework is not sufficiently risk sensitive to account for all the risks confronting licensed financial institutions (LFIs) in the Eastern Caribbean Currency Union (ECCU).
Basel II/III are international standards developed by the Basel Committee on Banking Supervision (BCBS), for assessing the capital adequacy of banks. Basel II seeks to ensure that banks maintain sufficient capital to cover their risks and absorb potential losses. The framework comprises three mutually reinforcing pillars:
- Minimum capital requirements;
- Supervisory review process; and
- Market discipline.
Basel III was released in 2010 by the BCBS, in response to the financial crisis of 2007-09 to strengthen regulation, supervision, and risk management within the banking industry.
The l Bank will engage key stakeholders throughout the implementation process. The ECCB has established a dedicated team within the Bank Supervision Department, to spearhead the programme of activities towards Basel II/III implementation, as well as a Basel II/III Implementation Working Group, comprising representatives from LFIs and the ECCB.
The implementation of the Basel II/III framework provides an opportunity for LFIs to improve risk management and ultimately, capital management. Licensed financial institutions will be required to develop more efficient risk management systems and internal controls; adopt risk-based internal audits; strengthen corporate governance; build capacity; and establish more effective management information systems. As a result, the ECCU banking system is projected to become more resilient and will enhance the region’s reputation as a stable financial center.