Convergence in the prudential regulation of banks – what is missing?

Regulatory divergence, or differences in how jurisdictions apply Basel III and other global banking standards, is a significant source of market fragmentation. For banks that operate in several jurisdictions, such variations create an uneven playing field and may hinder market entry, reduce efficiency and impede global risk-sharing among a broader array of market participants.

This paper leverages off the Financial Stability Board’s report and identifies specific sources of regulatory divergence in the banking sector. The findings are based upon a synthesis of earlier publications of the Financial Stability Institute that identified the methods that authorities use to implement international standards and to develop policies in areas for which no sufficiently prescriptive guidance exists.