“ rethinking financial stability ; evaluating regulatory prime concerns a decade on from the financial crisis ” speech by klaas knot, at the global risk regulation summit, risk minds international amsterdam, 3 december 2018 at the risk minds international conference, 3 december, klaas knot reflects on the developments since the onset of the financial crisis in 2008. the implementation of the financial reform agenda is advancing and the european banking sector is in safer waters. looking forward knot recognizes three elements of focus : completing implementation & evaluating reforms ; improving the business model sustainability and market confidence in european banks ; and being alert to the buildup of leverage outside the banking sector. knot concludes that the financial industry is continuously evolving, and financial regulation will have to follow suit. good morning, and also on behalf of the dutch central bank welcome to amsterdam! december is the time of year to reflect and the time of year to look ahead. 2018 was a special year, as it marks the tenth anniversary of the onset of the global financial crisis. many times i have heard : “ ten years since the start of the crisis ”. but so far i have never heard anyone frame it in a more positive way : “ it is the tenth year without a new global financial crisis materializing! ” but maybe that is only natural, as central bankers and supervisors would never celebrate a crisis that did not happen. looking back to the situation ten years ago, we were in the midst of immense financial chaos. many factors contributed to the crisis, i will not go into them, but years of deregulation and resulting gaps in regulation were definitely part of the story. what i will do today, is to try to shed light on the prime regulatory concerns we have right now, divided into three main areas : first, i would like to reflect on the financial reform agenda that has been carried out. my message there will be that we have made good progress but we still have work to do. we need to consolidate, implement and evaluate. second, i will argue that the european banking sector has to move from safety to soundness, with the key take away being that we should promote further integration and improve efficiency. and third, i will outline my view on financial stability going forward. financial stability being a concept that evolves over time and should incorporate new developments and risks. 1. the financial reform agenda so first let us look at the reforms carried out in the aftermath of the global financial crisis, which prompted a fundamental rethink of financial

problems however arise if there is too much liquidity transformation and / or too much leverage. in this situation non - banks can become major source of instability. the leveraged loans and high yield bond markets are particularly vulnerable in this respect. high yield debt levels are well above pre - crisis levels in the us, and roughly at pre - crisis levels in europe. 12 the good news is that the direct exposure of european banks seems relatively limited. the bad news is that non - bank financial intermediaries provide a high and increasing share of financing in the high - yield debt market13. should conditions deteriorate, such non - bank financial intermediaries are directly exposed to considerable potential losses. increases in credit risk premia would add to that. and perhaps even more important, there could be system - wide spillovers beyond the high - yield debt markets. in the past decade we focused most of our attention on strengthening bank regulation. this was much needed, and on this front much has also been achieved. now we observe emerging risks within non12 fsb ( 2017 ), “ global shadow banking monitoring report 2016 ”, annex 7 p. 87. calculations based on bloomberg data. bank entities. regulation of non - bank entities may help to ensure that liquidity and credit risks in all parts of the financial system are well - managed. but if we conclude that from a financial stability perspective excessive debt and leverage of nonfinancial counterparts are actually the main drivers of risk, we could also look for instruments that aim to address these directly, such as borrower - based regulation. the dutch consumer mortgage market is a case in point here, where we have set limits to both the loan - to - value and loan - to - income ratios that apply to all lenders, banks and non - banks alike. such an approach could be explored more broadly. 5. conclusion ladies and gentlemen, i want to conclude. after the global financial crisis banking regulation has been significantly strengthened. efforts should now focus on consolidation, implementation, and evaluation of the reform agenda. the banking sector is in safer waters now. but european banks need to do more to make their business models sustainable and regain market confidence. at the same time we have to be alert to the buildup of leverage outside the banking sector. the financial industry is continuously evolving, and financial regulation will have to follow suit.