Sabine Lautenschläger of ECB spoke at the George Washington University Law School in Washington D.C. about ways to deal with a globalized banking sector, reap the benefits, and keep the risks in check, as “that is the only way forward.” She also talked about further improving the current rules, with a focus on shadow banking.
She highlighted that the global nature of new rules in the banking sector have made the financial markets safer. Since “the banking sector is global, the standards need to be global too, to contribute to financial stability in the major financial centers. So I hope that the latest package of global banking standards—Basel III—will be completed this year. After finalizing Basel III, we need to focus on implementing the standards. I worry that some financial centers might not implement significant parts of the agreed framework. And that would be a great mistake. Without consistent implementation, the common standards will remain fragmented, leaving the door wide open to a race to the bottom in regulation, regulatory arbitrage, higher risks and future crises.”
With regard to improving the current rules, she mentioned that developments in the shadow banking sector merit close attention. Additionally, we must regularly assess whether the stated objectives have been fulfilled with the new set of rules. FSB is evaluating the recent reforms and this will indicate whether any unintended consequences exist and whether we need to adapt some of the rules—“although I do not expect a need for huge amendments,” said Ms. Lautenschläger. She concluded that “instead of building walls, we should come together to discuss how we can deal with a global banking sector …. Walking backwards will only lead us to where we came from: another global financial crisis.”
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