Climate-Change Work Is a Reminder That the Basel Committee Has Outlived Its Usefulness

The Federal Reserve should extend its recent rebuke of the Basel Committee to the entire enterprise.

The Basel Committee on Banking Supervision emerged as the international community’s response to the inadequate financial regulatory frameworks globally that had contributed to the great financial crisis. The Basel Committee is charged with setting standards for bank regulation. Though its standards are nonbinding, members frequently endeavor to implement them through their domestic regulatory processes, as seen in the current fight in the United States over the implementation of the so-called Basel III Endgame.

The Basel Committee suffers from the same tendency as all international organizations: a need to continually justify its existence according to the politically salient issues of the day. And there is no trendier issue in central banking than climate change, which a number of major central banks have incorporated into their mandates. Amid intense international interest, particularly from the European Central Bank, the Basel Committee has pursued a broad agenda to weave climate change into its recommendations on regulation, supervision, and disclosure.

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Dan Katz is an adjunct fellow at the Manhattan Institute and served as a senior advisor at the United States Department of the Treasury from 2019 to 2021. Thomas Hoenig is a distinguished senior fellow at the Mercatus Center.

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