Mini-Basel III in the Context of Economic Integration in the EAEU

On April 9–12, 2019, National Research University Higher School of Economics (HSE) hosted the XX April International Academic Conference on Economic and Social Development. Since 2000, April conferences at HSE have been bringing together renowned academics and experts from around the globe. The most recent research findings presented by the conference participants followed by intense discussions make HSE a place where new ideas in the various academic fields encourage  further research and introduce different perspectives on the seemingly known areas.

Eduard Dzhagityan, Associate Professor of HSE’s School of World Economy, spoke at the Conference’s Banking regulation section on the topic: “Perspectives of the “mini-Basel III” concept in the context of the EAEU integration policy.” The international experience of economic integration demonstrates that it is inevitable and imperative to stay in line with the fundamental principles of integration policy, including an integrated, common financial market along with financial sector regulation. At the same time, a higher level of EAEU financial markets fragmentation and domination of the banking sector assets in the aggregated financial assets are an extra source of systemic risks, which, in case of macro-level volatility, can seriously weaken financial intermediation opportunities and, ultimately, the effectiveness of integration processes. In this regard, the development of a regional banking regulation mechanism requires the convergence (and after that – synchronization) of the national banking regulation regimes while simultaneously searching for ways and perspectives for the supranationalization of regulatory institutions.

The findings that are based on a number of empirical studies, point to the fact that Basel III has proved its efficiency in the post-crisis system of the international regulatory order. The aptitude of Basel III for supervisory actions of the EAEU member states’ regulators is a clear signal of the feasibility of the single principles of the regulatory policy and prudential banking supervision pursuant to the international regulatory reform. At the same time, the effectiveness of the EAEU regulatory mechanism will be determined by the alignment of the processes of regulatory convergence and synchronization at the national level and the processes of synchronization of the national regulatory regimes with the Basel III standards and recommendations.

Transformation of the regulatory mechanism and the development of the single EAEU regulatory and supervisory cycle should yield a fundamentally new regulatory configuration – the mini Basel III standards that would reflect the specifics of regulatory regimes and macrofinance management in the EAEU member states, Eurasian integration processes, and the objective of financial stability. Mini-Basel III should also become a tool for minimization of systemic risks and maintenance of stress resilience of the national banking sectors, as well as a channel of interaction with the international banking regulators.

Currently, the concept of the EAEU-wide banking regulation mechanism is not yet well-defined, which is attributable to the lack of strategic vision in achieving regulatory consensus within the EAEU member states, the lack of integration-driven forces in the financial system, and a poor understanding of the risks of integration inconsistency in the absence of reliable tools for minimization of banking sector imbalances. Besides, the issues of institutional supranationalization of regulatory functions, including the delegation of regulatory powers by the national regulators to the supranational level, still remain open.

This work is a continuation of the study by Dr Dzhagityan of the regionalization of banking regulation and supervision in the EAEU: He unwrapped and systematized the risks of regulatory regionalization; showed the role of mini-Basel III in minimization of systemic risks; and defined the extent to which the mini-Basel III concept and mechanism are efficient in assessing the perspectives of ensuring financial stability in the EAEU.