Speakers of the session
MEP, ALDE Coordinator, Economic and Monetary Affairs CommitteeEuropean Parliament
Governor and Member of the Board of Governors, Danmarks Nationalbank
Secretary General, Basel Committee on Banking Supervision (BCBS)
Chairperson, European Banking Authority (EBA)
Luis M. Linde
Governor, Bank of Spain
Lorenzo Bini Smaghi
Chairman, Société Générale
Chief Risk Officer and Member of the Executive Board, ING Bank
Managing Director, Global Co-Head, Office of Government Affairs, The Goldman Sachs Group, Inc.
Objectives of the sessionThe session will first try to assess the magnitude of the forthcoming global regulatory evolutions in the context of an already unprecedented regulatory overhaul initiated in the wake of the financial crisis. The rational and the main consequences and issues related to these additional significant initiatives will also be outlined.
Points of discussion
What is the magnitude of the impacts of the forthcoming global regulatory evolutions?
- What is the magnitude of the impacts of forthcoming EU banks, respectively of level 2 and 3 EU implementing measures, EU supervisory authorities pillar 2 approaches, forthcoming global regulation evolutions, etc.?
- How to address regulatory uncertainty? What are the possible impacts of a Pillar 2 insufficiently clarified and harmonised in the EU?
What are the main rationale and consequences of forthcoming global regulatory evolutions?
- What are the fundamental evolutions that underpin the successive evolutions of Basel regulations? What key evolutions are targeted in the banking sector? How do investors consider the banking sector after the recent regulatory overhaul? What can they expect from forthcoming changes?
What are the main consequences and issues related to forthcoming global regulatory evolutions?
- What is the expected timetable for implementing expected regulatory changes? How are EU banks adapting to the successive regulatory waves? How do EU banks stand in the global competition landscape?
- Do the bank prudential framework and its expected evolutions allow banks to appropriately support the economy through lending, trade finance, market making, etc.? What issues may this raise for their clients?
Background of the sessionMany observers consider that the goal defined in 2008 under the aegis of the G20, of avoiding a similar financial crisis to the one experienced in the wake of the subprime crisis has largely been achieved. The quality and quantity of capital has been increased significantly, risk is by far more accurately envisaged, leverage is explicitly limited, mandatory liquid assets are now posted to face up to possible market dry ups, large exposure limits, various sources of moral hazard have been addressed, and finally dedicated notes and buffers should also significantly improve the resolvability of financial institutions; in depth reviews of the securitisation framework, in parallel to various regulatory pieces are dedicated to financial infrastructures…
In fact, several regulatory pieces are just being implemented and their effect on the EU bank sector and its financing capacity is not yet measured. Furthermore, the SSM for example, is programming a thematic review of the impact of IFRS 9 on bank provisioning, while targeted reviews of internal models are also scheduled by the SSM. All those studies might well contribute to substantial increases of capital requirements.
Although policy makers assert that a sound and stable financial sector is a precondition for strong, sustainable growth, finally, the questions which is now being raised is whether the prudential framework is adequate to support the economy. In addition, the capability of the EU financial sector to fully adapt to an unprecedented profusion of reforms is regularly questioned in particular considering the current concern raised by the poor profitability of certain institutions or business models, compared with banking sectors in other regions.
However, beside the effort provided by the SSM to further strengthen confidence in the Eurozone banking sector through specific level 2 capital and liquidity measures, additional substantial reforms are being worked out at the global level, regarding credit risk assessment, floors regarding risk weighting, operational and market regulatory capital, comparability of risk weightings, etc. These additional reflexions are motivated by the objective of appropriately balancing simplicity and comparability, with risk sensitivity.
Certain observers however assert that these regulatory evolutions are unveiling a real conceptual shift, which may well be creating a new financial land scape in which bank behaviour and strategies might be highly correlated or less risk sensitive, while certain financing products are - risk wise - unevenly treated (e.g. the non-neutrality of the capital charges for securitisation). Finally the risk linked to the financing of the economy is increasingly passed to the savers with reduced added value, if any, from the financial sector in terms of risk management.
One issue debated is also whether the regulatory framework would influence or impact differently the structure and behaviours of the financial sector in different regions provided that in particular in the US market financing, and also the existence of “sponsored” securitisation play such an important role.
Finally, some point to the fact that the ability of the financial sector to attract investors and finance necessary evolutions, impaired by the insufficient attractiveness of bank securities and related risk premiums, depends on transparency regarding risk, while others stress the impact of uncertainty produced by an endless regulatory overhaul.