andreas dombret : international challenges in financial regulation – the view from europe speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the japanese bankers association, tokyo, 29 march 2018. * * * 1 introduction ladies and gentlemen thank you very much for the kind introduction. on my flight here i realised that late march to early april is actually the perfect time of the year to visit tokyo. after all, it is sakura – or cherry blossom season, which started a little early this year. i will make sure i find some spare time tomorrow to take a walk and cherish this unique natural spectacle. i have already had some very productive meetings here in tokyo, and i am looking forward to my discussion with you today. thank you for the invitation, mr misawa. we are here to talk about international challenges in financial regulation. to kick - start our discussion, i would like to give you my view from a european perspective. i was asked to talk about quite a few topics, so i decided i would start at the global level in the first part of my talk and then switch to the european level. at the global level, i will talk about basel iii and its implementation. at the european level, i will focus on the european banking union and its future development. 2 regulation at the global level : basel iii and its implementation let ’ s get straight down to business. what ’ s the global state of play in matters of banking regulation? not long ago, we reached a remarkable milestone. the basel committee on banking supervision – a body made up of supervisory authorities from 28 jurisdictions – worked since the onset of the financial crisis to find a global solution to the problems that brought about the crisis. in december of last year, the committee finalised basel iii – the global minimum standard that imposes limits on the risks that internationally active banks can take. important and far - reaching standards like that aren ’ t agreed upon every day – and luckily enough, many of you might be thinking. so we can rightly say that the finalisation of basel iii was a major achievement. however, we can ’ t rest on our laurels. good rules have little value if they ’ re not implemented properly. therefore, we must now take the next step and master the implementation of basel iii. i am a strong supporter of swiftly implementing the standard in the european union to make it a binding reality. and i very much expect all the members of the committee

insolvency. in this context, higher capital requirements mean both, a higher quantity of capital as well as a higher quality. particularly, the minimum core capital requirements will rise from currently 2 % to then 4. 5 %, plus an extra 2. 5 % that will be introduced in stages from 2016 on. tier 1 capital requirements will increase from currently 4 % to then 8. 5 %. furthermore, a stricter definition of core capital is to be implemented. yet, this first line of defence is not sufficient and needs to be supplemented. in market - based economies the failure of individual enterprises, including banks, should not be ruled out a priori. thus, a second line of defence will be drawn, on the macroprudential level, which will only come into play if an institution breaks the first line of defence and becomes insolvent. its aim will be to curtail the impact of individual insolvencies on the financial system as a whole and to increase the financial system ’ s transparency. the european union only recently established an institution for macroprudential analysis and monitoring in order to recognise systemic risks early on, the european systemic risk board ( esrb ). germany passed a law on the restructuring of insolvent financial institutions last autumn, which is certainly a step to be welcomed. however, the various national restructuring mechanisms will only be fully effective if they are mutually compatible. as in other areas of regulation, this requires an internationally coordinated approach. additionally, measures of macroprudential oversight are currently being developed and implemented also to address systemic risk. dealing with systemic risk is complex and requires a multi - faceted approach. it should encompass systemically relevant financial institutions, markets and infrastructures, while transparency is crucial. topics that either still need further discussion or at least ratification include, for example, the question of how exactly to deal with institutions that are “ too big to fail ”. stricter regulation and more intense supervision lead, not least, to the internalisation of otherwise negative external effects of these institutions. the improvement of corporate governance, not least the implementation of the fsb ’ s international compensation standards, is also the subject of debate. further topics on the agenda are the mandatory registration of institutions that currently operate in the shadow banking system, and the standardisation of contracts and handling of derivatives. all these topics need to be concretised further. once implemented, these measures will have a profound impact on the financial system. they will increase