General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
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

Related Articles
News

APRA Grants License to New Authorized Deposit-Taking Institution

APRA announced that it has granted Judo Bank Pty Ltd a license to operate as an authorized deposit-taking institution without restrictions, under the Banking Act 1959.

April 24, 2019 WebPage Regulatory News
News

BoE Report on Evaluation of Approach to Concurrent Stress Testing

BoE published a report on the evaluation, by the Independent Evaluation Office (IEO), of the effectiveness of the approach of BoE to concurrent stress testing.

April 24, 2019 WebPage Regulatory News
News

FDIC Consults on Approach to Resolution Planning for IDIs

FDIC approved an Advance Notice of Proposed Rulemaking (ANPR) and is seeking comment on ways to tailor and improve its rule requiring certain insured depository institutions (IDIs) to submit resolution plans.

April 22, 2019 WebPage Regulatory News
News

FDIC Specifies Submission Timeline for FFIEC 031, 041, and 051 Reports

FDIC published the financial institution letters (FIL-21-2019 and FIL-22-2019) that offer guidance on submission of Call Reports FFIEC 051, FFIEC 041, and FFIEC 031 for the first quarter of 2019.

April 19, 2019 WebPage Regulatory News
News

US Agencies Propose to Revise Call Reports FFIEC 031, 041, and 051

US Agencies (FDIC, FED, and OCC) proposed to revise and extend, for three years, the Call Reports FFIEC 031, FFIEC 041, and FFIEC 051.

April 19, 2019 WebPage Regulatory News
News

US Agencies Propose to Amend Rule on Supplementary Leverage Ratio

US Agencies (FDIC, FED, and OCC) are proposing to revise the capital requirements for supplementary leverage ratio, as required by the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act.

April 18, 2019 WebPage Regulatory News
News

EIOPA Held InsurTech Roundtable on Use of Cloud Computing by Insurers

EIOPA had, on April 11, 2019, hosted its Fourth InsurTech Roundtable on the use of cloud computing by insurance undertakings.

April 17, 2019 WebPage Regulatory News
News

EP Resolution on Proposal for Sovereign Bond Backed Securities

The European Parliament (EP) published adopted text on the proposal for a regulation of the European Parliament and of the Council on sovereign bond-backed securities (SBBS).

April 16, 2019 WebPage Regulatory News
News

HKMA Decides to Maintain Countercyclical Capital Buffer at 2.5%

HKMA announced that, in accordance with the Banking (Capital) Rules, the countercyclical capital buffer (CCyB) ratio for Hong Kong remains at 2.5%.

April 16, 2019 WebPage Regulatory News
News

EP Approves Agreement on Package of CRD 5, CRR 2, BRRD 2, and SRMR 2

The European Parliament (EP) approved the final agreement on a package of reforms proposed by EC to strengthen the resilience and resolvability of European banks.

April 16, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2954