30 January 2018

BIS: A level playing field in banking

Keynote address by Mr Agustín Carstens, General Manager of the BIS, in which he focuses on closely related topics of the future of regulatory cooperation and institutions, and the risks of regulatory fragmentation. Linking these two topics is the issue of level playing field, and he concentrates on this.

This is an important topic - there is widespread agreement that a level playing field in banking is a key condition for a competitive banking sector that rewards the more efficient business models - not the most risky ones or those protected by implicit guarantees.

But before addressing this topic, let me get something very important out of the way. As you know, the BIS is not only about regulatory cooperation. Indeed, we spend plenty of time talking about macroeconomic developments, financial market conditions and monetary policy. On this basis, allow me to share a few observations from our recent economic discussions at the BIS which I think will be of interest to you.

Level playing field: good news/achievements

• The international policy framework - When the GFC hit in 2007-09, for example, national approaches prevailed. A key achievement is that this international framework for policy cooperation has grown much more robust. There is some hope, therefore, that future crises will not only be less likely, but also less likely to trigger uneven policy responses.
• Minimum standards - The agreed regulatory framework redresses the key shortcomings exposed by the GFC, such as insufficient bank capital, too much leverage, insufficient liquidity buffers and overstretched maturity transformation. What's more, it employs multiple regulatory metrics, with complementary constraints backstopping each other and providing protections against undue variation in risk weights across banks. The resulting, more robust regulatory approach better deals with the inherent uncertainties of risk management and measurement.

Level playing field: bad news/challenges

• The environment for international policy reforms - The main risk is that support for further measures may be waning. It is key not to neglect regulation of non-banks, where much remains to be done. Also, recall that consistent implementation does not preclude supervisors going beyond the agreed minimum standards, which brings me to the second area.
• Implementation and supervision - This is precisely implementation and supervision. Standards are one thing, implementation is another. Safeguarding Basel III's level playing field requires consistent and timely implementation. National authorities need to translate the new standards into legal requirements in their own jurisdictions. This has not always happened in the past, in terms of both timing and substance.
• Financial innovation and regulation - The third - closely related - area concerns the regulatory approach to financial innovation, especially fintech. Regulators have a difficult role to play here, as they have to provide a level playing field for all participants (banks and non-banks alike), while at the same time fostering an innovative, secure and competitive financial market.

Full speech

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