Axel A Weber: Developing a long-term investment perspective favouring
financial stability and growth
Introductory remarks by Professor Axel A Weber, President of the Deutsche Bundesbank,
at the Eurofi Financial Forum plenary session 16 on "Defining a common regulatory
and supervisory basis to achieve resilience, growth and competitiveness", Brussels,
29 September 2010.
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Ladies and gentlemen
The financial crisis has painfully demonstrated vulnerabilities of our financial system.
Strengthening the resilience of the financial system, that is of financial markets and their
players, is therefore the top priority when it comes to learning the lessons of the crisis.
Closing the regulatory gaps which the crisis has revealed - however important that is -
would be too little. Financial reform has to go beyond that and establish the necessary
institutions and regulations to deal with systemic risks.
Financial reform will not save us from any future financial crisis but it can significantly
dampen the frequency and intensity of financial crises in the future. Reducing the likelihood
of individual bank failures may act in this respect as a first line of defence. The most
important project in this regard is the revision of Basel II. This reform will significantly
increase the risk buffers of individual financial institutions by introducing stricter requirements
regarding the quality and quantity of bank capital. While the new rules require banks to
increase their capital, the provision of transition periods enables them to adapt to the more
restrictive capital and liquidity requirements. Hence, I am not afraid that the implementation
of Basel III might significantly impair the lending capacity of banks or hamper economic
recovery. While being subject to considerable uncertainty, recent comprehensive impact
studies by the Basel Committee and the Financial Stability Board suggest the economic
impact during the transition period will be moderate and that the long-term net benefits will be
positive. Now it is up to the G20 Heads of State and Government to approve the package at
their Seoul summit in November. Its global implementation afterwards is of utmost
importance in order to guarantee a level playing field and to prevent regulatory arbitrage.
In addition, some elements of the package require further work in the process of finalising the
whole. In particular, the extent of anti-cyclicality of capital buffers might be strengthened
further, and the requirements of the liquidity buffer in its currently proposed form warrant
further adjustment as well: requirements for eligible assets of private issuers, for example,
appear rather strict.
While the new Basel rules will certainly help to make the financial system of the future safer
and more stable, a second line of defence is required. The recent crisis has shown that a
systemic crisis may quickly pose a threat to institutions that are actually sound. Systemic
risk, however, cannot be dealt with by microprudential supervision alone. Regarding the
establishment of an effective macroprudential toolset, important measures are still due. Our
major concern in this respect is the too-big-to-fail issue. Efforts are being made by the FSB to
present an approvable base solution to the G20 summit. Essential details, however, will have
to be finalised afterwards, in particular the formal definition of "systemically important
financial institutions" (SIFI's). In order to find a credible solution to the too-big-to-fail problem
strong political commitment would act as a helpful support.
Taking the time constraints into account, I want to conclude my remarks. Nevertheless, I do
not want to fail to mention that macroprudential surveillance has to go beyond the focus on
individual national institutions. Close cooperation at the European and international levels is
indispensable in order to supplement microprudential supervision with a systemic view. The
establishment of the ESRB is an important step in the right direction. Now the challenge for
its members is to make it a success.
Thank you very much.