The writer, a managing director at Frontline Analysts and the accomplished author of The Unaccountability Machine, highlights the pressing challenges facing global banking regulation in the wake of rising geopolitical tensions. Currently, financial authorities worldwide are utilizing speeches and 'Dear CEO' letters to convey the urgency of preparing for heightened geopolitical risks. Yet, amidst these warnings, there exists an ironic twist: the financial regulation landscape may be grappling with its own geopolitical complexities, which may be even more serious than those confronting the banks themselves.

To illustrate this point, consider the ongoing evolution of the Basel III endgame, which represents the final phase of regulatory reforms for banks instituted after the financial crisis. Originally agreed upon in 2017, the implementation of these crucial reforms was intended to begin in early 2022. However, the reality today is starkly different. The European Union has postponed several key aspects of the framework until 2026, while the United Kingdom has extended the timeline for the entire initiative to 2027. Meanwhile, the United States has yet to present a comprehensive proposal. The recent appointment of Michelle Bowman, a noted critic of the Basel III endgame, to the position of Federal Reserve vice-chair for supervision adds another layer of uncertainty. In addition, Treasury Secretary Scott Bessents recent remarks seem to undermine the very principles of the Basel standards, raising significant doubts about the likelihood of achieving global implementation of the Accord. As American politics play out, it is clear that the influence of bank lobbyists has already led to delays and compromises during the Biden administration.

This growing uncertainty regarding global cooperation among bank supervisors is becoming increasingly apparent. The Financial Stability Board, which previously led initiatives concerning climate risk, cyber risk, and shadow banking, has announced plans to spend the entirety of 2025 focused on reviewing its own processes rather than fostering new regulatory frameworks. Concurrently, the Basel Committee on Bank Supervision is set to respond this year to the fallout from the collapses of Silicon Valley Bank and Credit Suisse in 2023. However, rather than introducing new regulations, they are expected to develop 'tools' and establish principles for 'effective supervisory judgment.'

Faced with this evolving landscape, regulators must confront the harsh reality that without leadership or at least cooperation from the United States, the processes for setting global standards are likely to falter. The existing regulatory standards for international banks are cumbersome, intricate, and in dire need of reassessment. Yet, given the current climate, such a comprehensive review seems unlikely. The only review undertaken thus far, which focused on the regulation of market risk, has proven to be the least popular aspect of the Basel III endgame. If the Basel system is no longer effective, one must ponder, what comes next?

Banking regulation has often been viewed as an anomaly within the broader framework of global governance. Unlike other sectors of finance, such as insurance or securities, which operate under diverse regulatory standards, banking is governed by a singular set of regulations. In contrast, the accounting profession has managed to coexist with both US Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). This begs the question: why are banks treated uniquely?

The Basel Committee itself is an intriguing entity. Founded after World War I to oversee reparations from Germany, it has evolved over a century, proving its relevance and usefulness, thus remaining operational. The committee comprises four seats for the United States, with the European Union boasting a disproportionate twelve seats for its member states, in addition to representation from the European Central Bank. The United Kingdom and Switzerland each hold two seats. Notably, the committee operates by consensus rather than majority vote, which can lead to prolonged discussions. Its cohesion over the past five decades can largely be attributed to the strong relationships among central bankers who share a common worldview.

To understand the original objectives of establishing global banking standards, it is beneficial to reflect on history. The Basel Committee's initial document, the 'Concordat,' drafted in 1975, sought to outline the principles of cooperation between home and host jurisdictions for international bank offices. It wasn't until thirteen years later that the need for the first 'Capital Accord' emerged, defining bank capital and the ratios that are now standard practice.

At that time, the primary goal was to prevent issues in one marketsuch as the Latin American debt crisis or the Japanese real estate bubblefrom cascading globally. The aspiration for a perfectly level global playing field developed later. The Basel system has expanded over time, fueled by its own successes.

Central bankers, unlike most bureaucrats, have historically maintained strong interpersonal relationships, enabling them to function as a unified body of governance. If the era of seamless international finance is drawing to a close, it may necessitate a shift back towards localized regulatory structures. Ironically, this change could result in an even greater regulatory burden, as institutions will need to comply with local standards across all their operational jurisdictions.