The Basle Capital Convergence Agreement (BCCA) is a landmark agreement signed by the world`s major economies to ensure that the global financial system remains stable and resilient.
The agreement is an important step in the ongoing effort to prevent financial crises and ensure that banks are adequately capitalized to weather economic shocks.
The BCCA is particularly significant because it represents a convergence of regulatory standards across different countries. By aligning their regulations, signatories to the agreement can reduce the risk of regulatory arbitrage, where financial institutions seek to take advantage of differences in regulations across jurisdictions.
The BCCA was signed in 1988 by the members of the Basle Committee on Banking Supervision, which is made up of representatives from central banks and regulatory bodies in major economies. The committee was established in response to the international financial crises of the 1970s and 1980s.
Over time, the BCCA has been updated to reflect changes in the global financial system. The most recent update, known as Basle III, was agreed upon in 2010 and introduced new capital requirements for banks.
As of 2021, there are 45 signatories to the BCCA, including the US, UK, Japan, Germany, France, and China. Notably, not all countries have signed onto the agreement. For example, Australia has not signed the BCCA but has implemented similar regulatory standards in its own banking system.
The BCCA has been credited with improving the stability of the global financial system, but it is not without its critics. Some argue that the agreement has led to a reduction in lending by banks, particularly to small and medium-sized businesses. Others have criticized the BCCA`s reliance on risk-weighted assets, which some argue allows banks to manipulate their risk measures to appear more capitalised than they actually are.
Despite these criticisms, the BCCA remains a key component of global financial regulation. As the world continues to grapple with economic uncertainty and the ongoing fallout from the COVID-19 pandemic, the BCCA`s provisions for ensuring the resilience of the financial system will continue to be of critical importance.