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09 March 2017

Bundesbank's Dombret: Between global competition and the regional principle – which bank needs which rules?

Andreas Dombret outlines a number of proposals that can better align the supervisory rules with the low-risk operations of small credit institutions in the future while nonetheless adhering to international standards.

There are already many exceptions in force today to help small institutions manage their compliance workload. However, such exceptions are not special treatment motivated by industrial policy concerns. Rather, they result from what banking supervisors are there to do in the first place – that is, to shield the economy effectively and efficiently from excessive risks and financial crises. This is the rationale behind the principle that high risks necessitate a high level of provisioning. The same holds true in reverse: low risks necessitate less provisioning. It can therefore be concluded from this that relief is always warranted as long as it does not result in risks being inadequately provided for.

Mr. Dombret illustrates the conditions under which he believes greater proportionality in banking regulation would be both possible and sensible.

He concludes by summarising the key points:

  • Cleverly selected relief measures for smaller institutions can contribute to a more stable financial system.
  • These measures should focus on operational requirements and should not result in capital or liquidity being lowered.
  • Internationally harmonised rules for large, international banks are needed. However, the approach taken to implementing the principle of proportionality in regulation can vary from country to country.

In the debate on proportionality, it is needed to concern ourselves less with what would appear to be policy issues and instead give greater consideration to concrete, targeted relief and appropriate criteria.

Full speech

© Deutsche Bundesbank

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