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24 April 2015

ECB: Monitoring, regulation and self-regulation in the European banking sector

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Sabine Lautenschläge said she does not believe in self-regulation in financial markets. “You cannot have stable and functional banks without comprehensive regulation and energetic supervision.”

Speech by Sabine Lautenschläge, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the Single Supervisory Mechanism, at the evening reception at the Deutsche Aktieninstitut in Frankfurt am Main, 21 April 2015.

Overall, financial integration in Europe has returned to a level close to that recorded before the sovereign debt crisis, the European Central Bank (ECB) said in a new report published at a Conference on Financial Integration and Stability held together with the EU Commission in Brussels.

“I don't think that you were much surprised by my saying that I don't think much of lax regulation. Given the obvious tendency towards exaggeration and erroneous developments in financial markets, and the potential damage for the economy and society, good regulations are an indispensable prerequisite for ensuring that the financial sector is able to function properly in the long term. This does not mean that the consequences of regulation and supervision for the banking industry's ability to function should not be considered. The desire of some to make up for the rigour of the rules with less stringent supervision is something I reject. That would be the wrong approach.”

But what are required are not only good regulations, but also a well-functioning supervisor that exercises tough but fair control to help ensure a stable banking system and a level cross-border playing field. A decisive factor for the success of the SSM will not just rest on banks in the euro area being subject to a consistent supervisory approach. Rather, both supervisory legislation and the powers of European supervision must take further steps in the direction of harmonisation.

Finally, it is not possible for every conceivable situation to be covered by regulations, nor can every crisis be anticipated from a supervisory point of view. Although regulation and supervision can ensure a certain measure of protection, or build a line of defence, as it were, they cannot and should not eliminate every risk. In this respect, banks and financial market participants that act independently, and take responsibility for their actions, remain a prerequisite for a stable and secure system, even if it is well-regulated and supervised.

Full speech

© ECB - European Central Bank

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