Featured Product

    ECB Vice President on Future of Finance and Outlook for Regulation

    November 09, 2017

    Vítor Constâncio, the ECB Vice President, spoke at the Financial Regulatory Outlook Conference on issues related to regulation and the future of finance. He highlighted that the reform has been successful in building a safer financial system and priority should be given to completing the agenda of Basel III.

    He noted that the recent financial crisis had its origins in excessive leverage and excessive credit or debt creation in the financial system as a whole, as in the past. The expansion of the financial sector was not enabled by savings invested in the capital of financial institutions, but mostly by a redefinition of risk capital and its endorsement by regulators. He also highlighted that the usual arguments against financial regulation rely on the notion that finance is good for growth—and more finance is always better. The financial industry argues that finance has been over-regulated, especially in terms of high capital requirements. The recovery of credit growth, however, seems to disprove this. After discussing about finance and growth, the ECB Vice President talked about another challenge to regulation that comes from the spread of FinTech: the use of new technologies to develop and distribute financial products and services. FinTech has penetrated mostly into payment systems. Banks’ payment-related income has decreased but some is retained, as bank accounts are still the ultimate way of settling. FinTech can have a big impact on cross-border payments by using the blockchain technology to eliminate several intermediate steps, speed up global transfers, and promote worldwide financial inclusion. FinTech firms are much less regulated than traditional institutions under the presumption that it is good to allow new competition. The hope of FinTech enthusiasts is that its spread will lead to much lighter financial regulation. However, new technologies generate new risks and do not eliminate the old ones which provide the rationale for financial regulation in the first place.

    He also discussed the overview of the regulatory reform and its limitations. He stated that there are already attempts to roll back financial regulation. The main points under pressure are the leverage ratio, the limitation of the use of internal models to assess credit risk and corresponding capital requirements, the Net Stable Funding Ratio (NSFR) and the Fundamental Review of the Trading Book. There are pressures to exclude repos, sovereign bonds, and export credits from the leverage ratio. He explained that this weakening of the standard should be avoided, as it increases the probability of crises and output losses. However, beyond solvency and high capital ratios, the crisis has illustrated liquidity risk, thus the importance of liquidity management rules introduced for the first time in Basel III standards. The Dodd-Frank Act in the U.S. and the Bank Recovery and Resolution Directive in the EU marked a shift away from the previously prevailing bailout approach to a bail-in regime. However, on cross-border resolutions, the new framework still has some issues to clarify. He also discussed the role of the shadow banking sector in the crisis, focusing on the use of securitization, repos and over-the-counter derivatives. The crisis revealed the important contribution of these dynamics in derivatives and securities financing transactions (SFT) to systemic stress. The overall progress in reducing risk in SFTs and derivative markets has been significant, but might not be sufficient. With regard to the macro-prudential policy, he said: "It is my contention that without an effective macro-prudential policy, advanced economies will not be able to safeguard financial stability. It is therefore an important endeavor to keep fighting for the appropriate tools and policies to smooth the financial cycle and to sufficiently tame finance in order to avoid crises that may threaten the future of our economies."

     

    Related Link: Speech

    Keywords: Europe, EU, Banking, Securities, Basel III, Fintech, Regulatory Reform, NSFR, LR, Shadow Banking, Securitization, OTC Derivatives, Macro-prudential Policy, ECB

    Featured Experts
    Related Articles
    News

    SEC Finalizes Capital and Margin Requirements for Security-Based Swaps

    SEC adopted a package of rules and rule amendments to establish capital, margin, and segregation requirements for security-based swaps, under Title VII of the Dodd-Frank Act.

    August 22, 2019 WebPage Regulatory News
    News

    ECB Revises Prudential Provisioning Expectations for New NPEs

    ECB is revising its supervisory expectations for prudential provisioning of new non-performing exposures (NPEs) specified in the “Addendum to the ECB Guidance to banks on non-performing loans” (Addendum)

    August 22, 2019 WebPage Regulatory News
    News

    CFTC Proposes to Revise Information Collection on Margin Requirements

    CFTC is requesting comments on the burdens associated with certain aspects of the Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants (final rule).

    August 21, 2019 WebPage Regulatory News
    News

    FASB to Delay Effective Date for Insurance Contracts Standard

    FASB issued a proposed Accounting Standards Update that would grant all insurance companies that issue long-duration contracts, such as life insurance and annuities, additional time to apply the standard that addresses this area of financial reporting.

    August 21, 2019 WebPage Regulatory News
    News

    EBA Publishes Phase 2 of Technical Package on Reporting Framework 2.9

    EBA published phase 2 of its technical package on the reporting framework 2.9, which includes validation rules, Data Point Model (DPM) data dictionary, and XBRL taxonomies.

    August 21, 2019 WebPage Regulatory News
    News

    FSB Publishes Responses to Its Consultation Related to SME Financing

    FSB published responses received to the consultation on a report on the evaluation of the effects of financial regulatory reforms on small and medium-sized enterprise (SME) financing.

    August 21, 2019 WebPage Regulatory News
    News

    APRA Revises Related Entities Standard for Banks

    APRA published a strengthened prudential standard APS 222 on associations with related entities, with the aim to mitigate contagion risk within banking groups.

    August 20, 2019 WebPage Regulatory News
    News

    EBA and ESMA Issue Joint Response to EC Letter on Crypto-Assets

    EBA and ESMA issued a joint response to the EC letter, from July 19, 2019, on crypto-assets.

    August 20, 2019 WebPage Regulatory News
    News

    FSB on Responses to Consultation on Wind-Down of Trading Portfolios

    FSB published responses received to the consultation on the solvent wind-down of the derivatives and trading book portfolio of a global systemically important bank (G-SIB).

    August 19, 2019 WebPage Regulatory News
    News

    FSB Publishes Responses to Consultation on Resolvability Disclosures

    FSB published responses received to the consultation on disclosures for resolution planning and resolvability of banks.

    August 19, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3681