The idea was to reduce their risk-taking by increasing their “skin in the game” and providing them with greater loss-absorbing capacity. The releasable macroprudential buffers I referred to earlier were also introduced. The second stage of the Basel reforms focused on a matter brought to light during the first phase: the calculation of risk-weighted assets (the denominator of the capital requirements under the Basel standards) and the need to standardise their treatment among institutions. Again, the aim here was to reinforce the credibility of banks’ prudential ratios and appropriate measurement of the risks assumed. A crucial aspect of this reform is the socalled “output floor”, which limits the benefits that banks can derive using internal models to calculate minimum capital requirements. 7  The (pre-pandemic) impact analyses of the reform reveal that banks’ capital requirements would increase in some jurisdictions, although they would also be reduced by certain elements. Some such elements, which were to be included in the European transposition of Basel III, have already been implemented through the Capital Requirements Regulation (CRR) quick fix, introduced in late June. In particular, the impact of the revised SME and infrastructure supporting factors is reflected in the recent behaviour of solvency ratios. Investments in intangible assets relating to software will cease to be deducted from capital at a later date. The objectives of the Basel III reform, which consist of balancing simplicity, comparability and risk sensitivity, remain wholly in place.

It is highly likely that the Chinese rebalancing will in the short term lead to slower economic growth, which could spill over to other economies via the well known trade, financial and confidence channels. In particular, the early evidence indicates that the Chinese slowdown is having stronger than expected effects on lower imports and lower commodity prices. In addition, such downward effects could be magnified by the possible accompanying turbulences in global foreign exchange and other financial markets. Second, the falling oil and commodity prices (and the expected persistence of low prices) could have negative effects on exports and economic growth in commodity-exporting emerging economies. This could also be reflected in further currency depreciations in these economies, which might in turn magnify corporate balance-sheet weaknesses, thus reinforcing negative growth feedbacks. Finally, divergent monetary policy moves between the US and most other economies that contribute to US dollar appreciation may have negative  BIS central bankers’ speeches  1  effects, with higher borrowing costs for dollar-denominated borrowing by emerging market companies and sovereigns. Geopolitical tensions regarding Ukraine and the Middle East also imply continuous uncertainty, which increases borrowing costs and makes investment decisions more difficult. Related to this, the refugee crisis represents an additional political and systemic challenge in our countries. This applies particularly to fiscal costs and possible political instability arising from refugee accommodation and integration, which might affect macroeconomic policy and wider European political and economic integration projects.