ECB’s Knot: Need to Shore Up Financial System Resilience by Enacting Policy Recommendations

22 October 2024

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Klaas Knot on Tuesday warned against exaggerating the resilience of the global financial system and repeated his exhortations to implement related policy proposals.

In a speech in New York, Knot, who heads De Nederlandsche Bank, said that the financial system had in recent years withstood reasonably well various bouts of turbulence that included ‘potentially destabilising’ failures of financial institutions.

‘So, one interpretation is that the financial system has proved to be resilient’, he said. ‘But that is not entirely true.’

Policy intervention had also been crucial, perhaps even the key reason another financial crisis has been avoided, he said. In this regard, ‘there is much left to do if we want a truly resilient financial system’, he said.

Knot reiterated his calls for the full geographic implementation of Basel III standards and for the application of the Financial Stability Board’s policy recommendations in the non-bank financial sector, as well as in the market for crypto-assets.

‘It seems that, 16 years after Lehman, implementation fatigue has started to set in’, he complained. ‘Political commitment for maintaining financial stability is usually the highest when the collective memory of the last crisis is still fresh. When this memory starts to fade, there is the risk that financial stability is taken for granted.’

It would be a mistake to wait for the next crisis as a catalyst for needed action, he said.