Jaime Caruana of BIS Speaks on Challenges After Post-Crisis Reforms

Since the early stages of designing the current reforms, there have been significant efforts to assess their potential impact. As these reforms are being implemented, more valuable information is becoming available to assess whether the new rules are working as intended and whether they generate adverse unintended effects. These can include the excessive shift of risks toward less regulated areas, the reduced liquidity in some securities markets, or the retrenched provision of correspondent banking services to some countries. Such assessments require a comprehensive and inter-sectoral approach to grasp the whole range of effects that the new standards could generate. The comprehensive analysis should build on the extensive impact assessments conducted by each standard-setter. The next logical step is to systematically conduct and generalize these types of assessments. FSB, in cooperation with the relevant standard-setters, has recently launched a methodological framework for the evaluation of the  post-crisis reforms. In this context, two elements seem to be critical.  

To maximize the benefits of new standards, supervisors must take a more comprehensive approach to address the build-up of vulnerabilities at financial institutions. Mr. Caruana explains that supervisory intervention needs to be more proactive and highlights that supervisory priorities and practices are becoming more forward-looking. He also discussed the need for policy interventions (by conduct of business supervisors and prudential supervisors), arising from developments in the area of financial technology (fintech). He then cited the example of the recent Basel Committee public consultation on the implications of fintech for the financial sector. The effectiveness of policy actions can only be achieved through international cooperation among national authorities. One key aspect of this cooperation is the exchanges of practices and experiences among regulators and supervisors to help ensure that sound policy approaches are adopted worldwide. He believes that FSI can support the standard-setters in this regard and should continue to play a key role in promoting the adoption of good policy practices across jurisdictions. This work goes well beyond the dissemination of standards. It also includes, as the FSI is now doing, facilitating information-sharing and providing analysis that helps financial sector authorities to identify the appropriate policy approaches. 

Related Link: Speech (PDF)

Keywords: International, Banking, Securities, Insurance, Policy Implementation, Post-Crisis Reforms, Financial Stability, BIS