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

    BCBS Amends Guidelines on Sound Management of AML/CFT Risks

    BCBS amended the guidelines on sound management of risks related to money laundering and financing of terrorism (ML/FT).

    July 02, 2020 WebPage Regulatory News
    News

    EBA Guidelines on Treatment of Structural Foreign Exchange Under CRR

    EBA finalized the guidelines on treatment of structural foreign-exchange (FX) positions under Article 352(2) of the Capital Requirements Regulation (CRR).

    July 01, 2020 WebPage Regulatory News
    News

    FSB Issues Statement on Impact of COVID-19 Crisis on Benchmark Reform

    FSB published a statement on the impact of COVID-19 pandemic on global benchmark transition.

    July 01, 2020 WebPage Regulatory News
    News

    IAIS Publishes List of Internationally Active Insurance Groups

    IAIS published the list of Internationally Active Insurance Groups (IAIGs) publicly disclosed by group-wide supervisors.

    July 01, 2020 WebPage Regulatory News
    News

    FED Temporarily Revises FR Y-9C With Respect to PPPLF and CARES Act

    FED has temporarily revised the reporting form on consolidated financial statements for holding companies (FR Y-9C; OMB No. 7100-0128).

    July 01, 2020 WebPage Regulatory News
    News

    EC Launches Consultation on Review of Solvency II Directive

    EC launched a consultation on the review of the key elements of Solvency II Directive, with the comment period ending on October 21, 2020.

    July 01, 2020 WebPage Regulatory News
    News

    ECB Consults on Supervisory Approach to Consolidation in Banking

    ECB launched a consultation on the guide that sets out supervisory approach to consolidation projects in the banking sector.

    July 01, 2020 WebPage Regulatory News
    News

    PRA Letter Sets Expectations on Approach to Managing Climate Risks

    PRA published a letter that builds on the expectations set out in the supervisory statement (SS3/19) on enhancing banks' and insurers' approaches to managing the financial risks from climate change.

    July 01, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Amendments to Swap Margin Rule

    US Agencies (Farm Credit Administration, FDIC, FED, FHFA, and OCC) finalized changes to the swap margin rule to facilitate implementation of prudent risk management strategies at banks and other entities with significant swap activities.

    July 01, 2020 WebPage Regulatory News
    News

    IAIS on Package for 2020 Data Collection on ICS and Aggregation Method

    IAIS published technical specifications, questionnaires, and templates for 2020 Insurance Capital Standard (ICS) and Aggregation Method data collections.

    June 30, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5425