Speech Summary Financial Regulation: Some Observations
Federal Reserve Bank of San Francisco's Symposium on Asian Banking and Finance
San Francisco –
The speech begins by outlining the benefits and challenges presented by the increasingly global nature of finance. It underlines that though work is underway to develop a regulatory framework that is genuinely international, many important responses to the global financial crisis will remain national. Major themes of international regulatory reform that are being considered under Australia's presidency of the G20 are then discussed in detail. The speech notes that such work will largely focus on implementing commitments already made, rather than developing new regulation.
The speech examines each of the four key themes of regulatory reform on the current international agenda. Increasing the resilience of financial institutions is discussed in the context of progress in implementing the Basel III rules, which are described as ‘well on track’. It suggests that most countries are well placed to implement the new international capital and liquidity standards in the agreed timeframe, with remaining policy details being ‘ironed out’.
Discussion about regulatory reform of derivatives highlights that work to achieve increased reporting, platform trading and central clearing is running behind the original timetable. The speech acknowledges that whilst progress is being made in this area, it could be improved if regulators communicated the basis of their decisions and provided certainty by clarifying the scope for transitional relief in a timely manner.
On addressing the risks posed by certain types of shadow banking, the speech notes the importance of balancing efforts to contain this activity against unnecessarily stifling genuinely productive intermediation and innovation. It then focuses on work to address the problem of ‘too big to fail’ banks. Consideration is given to a proposal for ‘gone-concern loss-absorbing capacity’ for global systemically important banks (GSIBs). Issues that must be resolved in developing such a proposal are outlined. And the importance of international cooperation in resolving such a GSIB is underlined.
The speech also examines the possible limits to regulation and emphasises that work ahead will focus on the fulfilment of commitments already made rather than implementation of new regulation. It notes that regulators are not trying to extend the regulatory ‘perimeter’ indefinitely and discusses the future challenge of assessing when an activity that is technically outside such a ‘perimeter’ might be about to present a threat to overall stability. Finally, it discusses the challenges that may be posed by the pace of technological change.