Featured Product

    ECB Board Member on Regulation, Supervision, and Market Discipline

    September 18, 2017

    Sabine Lautenschläger, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, at a conference hosted by the Financial Stability Institute spoke about striking a balance between regulation, supervision, and market discipline. She highlighted that the financial crisis made clear that the three pillars—regulation, supervision, and market discipline—that support a stable banking sector were in need of some repairs.

    Ms. Lautenschläger noted that the crisis clearly demonstrated that banking is a global business and the first step is to finalize the global rulebook, Basel III, as quickly as possible. The second step is to implement and apply the rules in a broadly consistent manner at regional and national level. However, rules are just one of the pillars that support a stable banking sector. The second pillar is supervision. There is a need to strike a delicate balance because these two pillars interact in a subtle way. She further highlighted that the world is complex and uncertain, particularly when it comes to finance and banking. Either we come up with more rules to try to cover every potential situation or we allow supervisors some discretion within a set framework and let them judge specific situations on their merits. In the end, these two options need to be in balance and we must be careful not to disturb this balance.

     

    The third pillar of a stable banking sector is the market discipline, as banks operate in a market economy. Market forces can be used to keep risks in check. There is nothing like the prospect of failure and financial loss to keep a lid on risk-taking; this, as a general rule, is the essence of market discipline. Investors who stand to lose their own money will be more cautious than investors who can offload losses onto someone else. Governments often stepped in and propped up failing banks with public funds. She noted, "There was no chance for the market to impose discipline. This has changed. In Europe, we now have a single resolution mechanism for banks. It was designed to ensure that banks can fail in an orderly mahnner without damaging the financial system. This new mechanism has recently passed its first series of tests. Generally speaking, it was successful, although some adjustments are still needed. In any case, we have taken a big step toward more market discipline in the European banking sector." She concluded her speech by reinforcing that these three pillars have become stronger since the crisis and we must ensure that they remain in good shape and share the load in a balanced way. Otherwise, we will not reap all the benefits of the transformation that has taken place in banking supervision.

     

    Related Link: Speech

    Keywords: Europe, Banking, Regulation, Supervision, Market Discipline, Basel III, ECB

    Featured Experts
    Related Articles
    News

    BCBS Consults on Principles for Operational Risk and Resilience

    BCBS is consulting on the principles for operational resilience and the revisions to the principles for sound management of operational risk for banks.

    August 06, 2020 WebPage Regulatory News
    News

    FSI Note Discusses Challenges Associated with COVID Relief Measures

    The Financial Stability Institute (FSI) of BIS published a brief note that examines the supervisory challenges associated with certain temporary regulatory relief measures introduced by BCBS and prudential authorities in response to the COVID-19 pandemic.

    August 06, 2020 WebPage Regulatory News
    News

    HKMA Announces Repayment Deferment Under Payment Holiday Scheme

    HKMA, together with the Banking Sector Small and Medium-Size Enterprise (SME) Lending Coordination Mechanism, announced a ninety-day repayment deferment for trade facilities under the Pre-approved Principal Payment Holiday Scheme.

    August 05, 2020 WebPage Regulatory News
    News

    ESRB Paper Presents Alternative Approach to EBA Stress Test Proposal

    The Advisory Scientific Committee of ESRB published a response, in the form of an Insights Paper, to the EBA proposals for reforms to the stress testing framework in EU.

    August 05, 2020 WebPage Regulatory News
    News

    MAS Announces Key Initiatives to Support Adoption of SORA

    MAS announced several initiatives to support adoption of the Singapore Overnight Rate Average (SORA), which is administered by MAS.

    August 05, 2020 WebPage Regulatory News
    News

    BoE Updates Template and Definitions for Form ER

    BoE updated the reporting template for Form ER as well as the Form ER definitions, which contain guidance on the methodology to be used in calculating annualized interest rates.

    August 05, 2020 WebPage Regulatory News
    News

    PRA to Extend Temporary High Balance Coverage Amid COVID Crisis

    PRA published the policy statement PS19/20 on the final policy for extending coverage under the Financial Services Compensation Scheme (FSCS) for Temporary High Balance.

    August 04, 2020 WebPage Regulatory News
    News

    EBA Publishes Standards on Disclosure and Reporting of MREL and TLAC

    EBA published the final draft implementing technical standards for disclosures and reporting on the minimum requirements for own funds and eligible liabilities (MREL) and the total loss-absorbing capacity (TLAC) requirements in EU.

    August 03, 2020 WebPage Regulatory News
    News

    EBA Releases Erratum for Phase 2 Package on Reporting Framework 2.10

    EBA published an erratum for the phase 2 of technical package on the reporting framework 2.10.

    August 03, 2020 WebPage Regulatory News
    News

    EC Sets Out Updated Technical Information for Solvency II Calculations

    EC published the Implementing Regulation 2020/1145, which lays down technical information for calculation of technical provisions and basic own funds.

    August 03, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5635