Bank of Canada’s Tiff Macklem takes on new role overseeing global bank rules

The Bank of Canada building in Ottawa, June 2, 2021.Ashley Fraser/The Globe and Mail

Bank of Canada governor Tiff Macklem is taking on a new role overseeing the global banking system as the chair of a group of central bankers that oversees the Basel Committee on Banking Supervision.

The Basel Committee is an international body that sets banking standards to promote global financial stability. This includes rules about how much capital banks need to hold relative to their assets, and rules about stress testing, a process to see if banks can withstand various economic shocks.

Mr. Macklem will chair the Group of Governors and Heads of Supervision, which sets the overall direction and priorities of the Basel Committee. The three-year term begins immediately. He does not change his role as head of Canada’s central bank.

“I look forward to continuing [the group’s] important work of providing strategic direction to the Basel Committee, as it works to promote full Basel III implementation, address new challenges facing banks and supervisors, and enhance global financial stability,” Mr. Macklem said in a statement.

The committee developed the Basel III framework in response to the 2008 financial crisis. The full implementation of these rules has been delayed several times, most recently by the COVID-19 pandemic.

The Basel Committee was established in 1974 in Switzerland after a major upheaval in international currency and banking markets. It started with ten members and has expanded several times since then, most notably after the financial crisis, which was caused in large part by overleveraged banks with inadequate levels of capital and liquid assets.

Basel Committee rules are not legally binding, and member countries need to implement them separately.

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Mr. Macklem steps into the role at a time of uncertainty in the global economy. With inflation running at multidecade highs, central banks around the world have begun raising interest rates in what is expected to be an aggressive rate-hike cycle. This could affect housing markets and feed financial stability concerns.

Moreover, Russia’s invasion of Ukraine has resulted in massive sanctions that have cut Russian banks and businesses off from much of the global financial system. This has not created significant financial stability concerns outside of Russia, but authorities have warned about medium-term risks, particularly for European banks.

“First-round risks stemming from the Russian invasion of Ukraine are not a fundamental threat to the stability of the EU banking system, but second-round effects may be more material,” the European Banking Authority said on Friday.

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