speech date : 10 november 2016 speaker : governor stefan ingves venue : the swedish bankers ’ association bank meeting, grand hotel, stockholm sveri ges riksbank se - 103 37 stockholm ( brunkebergstorg 11 ) tel. + 46 8 787 00 00 fax + 46 8 21 05 31 registratorn @ riksbank. se www. riksbank. se necessary reforms for a more stable financial sector crises are expensive and should be avoided when financial crises afflict us it becomes obvious to all how much damage they cause. unfortunately, this insight is often temporary, as it is easy – even a human survival instinct – to forget problems and leave them behind us. as a representative of the basel committee i therefore see it as an important task to remind you of how costly financial crises are to the national economy and how important it is that we have robust regulatory frameworks that reduce both the cost of crises and the probability that they will occur. although we often see a return in the growth rate of the economy, crises usually lead to a permanent fall in gdp, which takes a very long time to recover from. even today, almost 10 years after the financial crisis broke out, many countries are struggling with low growth, high unemployment and low inflation. in several cases they also have high sovereign debt. and in the case of sweden, there is no other event since the second world war that has affected swedish gdp as negatively as financial crises. there are two clear dents in swedish gdp post - war development : during the financial crisis in the 1990s and during the global financial crisis 2008 - 2013. the most acute problems are remedied but some work remains a crucial cause of the most recent financial crisis was that banks around the world had taken on too much risk. this was possible for two reasons. firstly, the regulatory framework applying at the time did not sufficiently influence the banks ’ risk taking. secondly, the banks themselves evidently did not have the will or ability to manage their risks on their own. the answer was the basel iii agreement - a comprehensive package of reforms with the main purpose of strengthening the banks ’ capital base to ensure that they can manage losses in a better way and improve the banks ’ liquidity management. but even if basel iii dealt with the most acute shortcomings, work remains to be done to ensure that banks around the world are well capitalised. i intend to spend a little 1 time here talking about the reform work the basel committee is

liquidity prescriptions a key learning from the crisis was that liquidity is also important as with dynamic equilibria, liquidity problems can soon turn into solvency problems. therefore, ssbs have focused closely on improving the liquidity risk profile of the individual firms. but even these regulations have not been without their share of unintended consequences of varying degree across jurisdictions. on a broader level, in order to meet the lcr norms, the banks would need to hold more long terms liabilities and short term assets. also, the nsfr norms would lead to curtailment of the market making abilities of the banks. both of these would have adverse implications for the banks ’ margins. in india, the banks are statutorily required to hold a certain percentage of their liabilities ( slr ) in government securities, state government securities and other approved securities. the slr securities meet all the characteristics of the level 1 “ high quality liquid assets ” ( hqlas ) and hence, the current insistence on separately holding additional hqla would mean a very high cost for the banks operating in india. similarly, due recognition also needs to be given to high level of public deposits and a very low run - off rates for these deposits in the emde banks, including in india as compared to other jurisdictions. thus, on the whole there is a strong case for according a fair extent of national discretion to the regulatory authorities for implementing the liquidity risk framework in their respective jurisdictions. v ) impact of tlac the tlac has added an additional dimension for emerging markets like india, even while the proposal essentially is aimed at g - sibs that have acquired tbtf dimension in the advanced economies. let me briefly describe the likely impact. as i mentioned earlier, the characteristics of the banking system in the emdes is vastly different than in the aes. these economies have potential to grow and hence supply of credit is needed to support growth. these economies play host to several g - sibs and hence they compete with non - g - sibs in the same market. there is potential for spillover impact and non - g - sibs could be forced by market to hold higher level of capital on similar levels as the g - sibs. there is also a likelihood of the g - sibs present in the emdes, curtailing their operations. either of these developments would impact the supply of credit and would be negative for the growth prospects in these economies. on the demand side