ECB’s de Cos: No Lack of Risks and Vulnerabilities Facing Global Banking System

28 April 2023

By David Barwick – FRANKFURT (Econostream) – The global banking system confronts many challenges that argue against relaxing the regulatory framework, European Central Bank Governing Council member Pablo Hernández de Cos said Friday.

In a speech in Stockholm on the work of the Basel Committee on Banking Supervision, which he heads, de Cos, who also heads Banco de España, said that ‘the risks and vulnerabilities affecting the global banking system’, of which there were ‘no shortages’, included ‘elevated debt levels and stretched asset valuations, geopolitical developments, complex and opaque bank interconnections with NBFI entities, and continued uncertainty with regard to economic growth, inflation and interest rate dynamics.’

There were still now banks that, he criticised, ‘fail to meet basic risk management and governance practices’, deficiencies supervisors shouldn’t be expected to address before management.

Beyond these cases, the supervisory framework should be kept strong, and supervisors should be empowered to instruct the entities they watch over to correct inadequacies, he said. As banking crises become more and more events of the past, inevitable appeals to weaken regulation must be resisted, he urged.

‘The recent banking turmoil has again reminded us of the critical importance of prudent and robust regulatory standards for bank capital and liquidity’ he said. Basel III reforms had ‘helped contain the fallout of the recent banking stress events’, but it was clear that there were still works in progress, such as the issue of banks’ risk-weighted capital ratios, he said.

The Basel III reforms of 2017 were meant to deal with this and are still just as relevant, he said. ‘Therefore, implementing the outstanding Basel III standards in a full and consistent manner in all jurisdictions is a critical step towards safeguarding the resilience of our banking system’, he said.