The objectives of economic integration requires countries’ mutual efforts to implement them. In fact, the post-crisis recovery demonstrated that there is virtually no alternative to Basel III standards and recommendations to protect against external shocks and strengthen the stress resilience of banks. In the European Union (EU), the Basel III mechanism has become the basis for the standardization of regulatory policies. However, in the Eurasian Economic Union (EAEU), integration processes are still missing any banking regulation accords, and the variety of the national regulatory regimes hinders integration and slows the process of supranationalization of the regulatory architecture, threatening the exacerbation of systemic risks and, ultimately, the erosion of strategic focus within the framework of the EAEU’s single financial market and the EAEU’s integration at large.

In this article, we examine the prospect that financial regulators in the EAEU member states will reach a consensus on the “Mini-Basel III” concept based on the Basel III standards and recommendations aiming at further strengthening the economic basis of integration, including minimization of systemic risks and ensuring financial stability. Based on the analysis of banking supervision standards in the EAEU member states and their quantitative metrics in 2015–24 (that is, from the moment the Basel III standards were phased-in in the EAEU member states), we conclude that different regulatory regimes are the main source of systemic risks, while a single regulatory regime will minimize systemic stress subject to implementation of the Mini-Basel III framework. Furthermore, taking into consideration the increasing uncertainty and risk in the Eurasian financial market, we develop scenarios of financial integration based on Mini-Basel III and without it. At the same time, the dominance of implicit and often apparent advantages of the different vs. single regulatory regimes, as well as sanctions imposed on Russia and the threat of secondary sanctions against the remaining EAEU member states, will impede implementation of Mini-Basel III. The proposed Mini-Basel III concept could be used by financial regulators in developing an EAEU supranational banking regulation mechanism, including for regulation of the prospective regional banking union.

This article was submitted 20.09.2023

Acknowledgements:This work is an output of a research project «“Mini-Basel III”: An EAEU Supranational Banking Regulation Framework for Financial Stability?», implemented as part of the HSE University Project Group Competition at the Faculty of World Economy and International Affairs.

The authors appreciate the contribution of the Project group members Darya Evreeva and Maria Rozhkova. We are also thankful to Vadim V. Kovalev, Ph.D., Head of the Banking Policy Division of the Financial Policy Department of the Eurasian Economic Commission (EEC) and Anastasia V. Podrugina, Associate Professor of the Department of World Economy of the HSE University for their valuable remarks and comments during the development of this article.