Featured Product

    Sabine Lautenschläger of ECB on Risks, Rules, and Supervision

    October 30, 2018

    While speaking at the 13th ASBA-BCBS-FSI High-Level Meeting on Global and Regional Supervisory Priorities in Bahamas, Sabine Lautenschläger of ECB took stock of risks, rules, and supervision ten years after the global financial crisis. She examined importance of the effective global implementation of Basel III reforms, outlined the new approach for banking supervision, and discussed the risks looming in the horizon.

    She examined the importance of the global implementation of Basel III reforms and highlighted the need to watch out for regulatory arbitrage by banks. With respect to a better approach to banking supervision, she mentioned that supervisors must be adaptive and must take a risk-based and forward-looking approach. They need not rely on what the banks tell them, but can form their own opinion and challenge the views of banks. For example, ECB benchmarks banks that pursue the same line of business. Supervising the 118 largest banking groups from across the euro area means that ECB can benefit from a deep quantitative and qualitative analysis. This allows ECB to challenge banks in a more credible manner. Next, she discussed the importance and need for international cooperation, adding that the Financial Stability Institute plays an important role in bringing together supervisors at all levels from around the world.

    She mentioned various risks facing the banking sector, including geopolitical uncertainties related to trade tensions and Brexit, legacy assets such as non-performing loans, cyber risk and other risks associated with digitalization, shadow banking risks, and climate change risks. In terms of climate change, she sees three challenges for banks. First, there are physical risks. More frequent and more severe storms, floods, droughts, heatwaves, and rising sea levels have already caused losses for businesses. When these risks were uninsured, they had very direct effects on banks’ credit risk, for example, through damaged collateral. Second, “green finance” is a growing area of business. As all supervisors know well, financial innovation can bring a lot of good—but it can also spin out of control. So, green finance must be monitored, just as any other type of financial innovation is monitored.

    The third challenge is related the transition to a low-carbon economy. Policies to encourage a more sustainable way of doing business will have far-reaching consequences. For one, they could impact the banks’ customers. Think of car manufacturers or energy suppliers. They could affect commodity and energy prices. This in turn could change market risks for banks. The policies required to shift to a more sustainable economy could upset financial stability. However, this should not scare us into inaction. This is because the true risk is that banks do not adjust or adjust in the wrong way. She added that supervisors should keep expanding their horizons. In practice, this could mean encouraging banks to recognize the potential impact of climate risk on their exposures. 

     

    Related Link: Speech

    Keywords: Europe, EU, Banking, Banking Supervision, Basel III, Climate Change Risks, ECB

    Featured Experts
    Related Articles
    News

    HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs

    HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.

    February 24, 2021 WebPage Regulatory News
    News

    EBA Proposes Standards for Supervisory Cooperation Under IFD

    EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.

    February 24, 2021 WebPage Regulatory News
    News

    BoE Sets Out Plan to Transform Data Collection from Financial Sector

    BoE has set out a three-phased plan to transform data collection from the UK financial sector over the next decade.

    February 23, 2021 WebPage Regulatory News
    News

    BIS Issues Updates on Technology Initiatives on Cross-Border Payments

    BIS recently made a couple of announcements with respect to the planned and ongoing work in the area of financial technology.

    February 23, 2021 WebPage Regulatory News
    News

    ESRB Updates List of Macro-Prudential Measures in February 2021

    ESRB updated the list of national macro-prudential measures applied by each member state in the European Economic Area.

    February 22, 2021 WebPage Regulatory News
    News

    BoE Survey Shows Positive COVID Impact on Outsourced Banking Services

    BoE has set out results of a survey on the impact of COVID-19 events on the use of machine learning and data science.

    February 22, 2021 WebPage Regulatory News
    News

    ECB Issues Opinion on Proposal to Regulate Crypto-Asset Markets in EU

    In response to a request from the European Council and Parliament, ECB published an opinion on the proposed regulation on markets in crypto-assets.

    February 22, 2021 WebPage Regulatory News
    News

    APRA Announces Aggregate Committed Liquidity Facility for Banks

    APRA announced the updated aggregate amounts for the 2021 Committed Liquidity Facility (CLF) established between the Reserve Bank of Australia (RBA) and certain locally incorporated authorized deposit-taking institutions that are subject to the Liquidity Coverage Ratio (LCR).

    February 19, 2021 WebPage Regulatory News
    News

    ECB and UK Authorities Agree on Post-Brexit Supervisory Cooperation

    ECB published supervisory Memorandums of Understanding (MoUs) with UK as well as other European and non-European authorities.

    February 19, 2021 WebPage Regulatory News
    News

    EIOPA Outlines Strategic Supervisory Priorities for Insurance Sector

    EIOPA identified business model sustainability and adequate product design as the two EU-wide strategic supervisory priorities.

    February 19, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6619