christian noyer : a new regulatory framework for a new financial system speech by mr christian noyer, governor of the bank of france, at a round table discussion at the university of paris - dauphine, paris, 11 december 2008. * * * ladies and gentlemen, it is a great pleasure for me to take part in this round table discussion. today, the prevailing view is – and justly so – that it is necessary to rethink financial regulation. there are two reasons for this : a ) financial markets and banks are, more or less strongly, confronted with problems of asymmetric information ; b ) operational inefficiencies may arise, leading, in some extreme cases, to the seizing up of certain market segments. needless to say that these imperfections are interconnected. in many respects, the financial crisis is the expression of these imperfections. three examples can be used as an illustration. the underestimation of risk and the mispricing of assets during the upswing of the financial cycle show that markets may generate excess investment in certain sectors of the economy ( e. g. the us real estate sector ). furthermore, it appears that financial innovation and the change in banks ’ economic models have resulted in a significant increase in information asymmetries and, more importantly, in lower incentives for economic agents to pay attention to these asymmetries. lastly, the fact that some market segments seized up during the crisis suggests that some infrastructures necessary for their functioning are lacking. to simplify, i believe that the logic underlying the current regulatory system consists in ensuring the financial stability of market segments, but without adopting an overall approach. however, the crisis has forced us to acknowledge that this fragmented approach to regulation does not necessarily ensure the stability of the entire financial system. during this crisis, the fact that financial institutions had considerably increased their use of leverage and that risk was concentrated among a relatively small number of banks was neither well assessed, nor well captured, nor prevented by regulation. in view of this failure and in order to mitigate the impact in terms of financial instability, government interventions were designed, not to stabilize the situation of any particular institution, but to prevent systemic risk from materialising. as a result, we now require macro - prudential regulation. this naturally leads us to address the issue of the scope of financial regulation. who should be regulated? the problem is not new ; it is also complex. like me, you will have noticed

safe to say that your career was very eventful in this respect. in the 1990 ’ s, when you were head of the research department at the banco de mexico, mexico went through the so called tequila - crisis, when it encountered difficulties in financing its large current account deficits. and in 2008, as mexico ’ s minister of finance, you helped to coordinate an international response to global financial crisis in the g20. 1 / 2 bis central bankers'speeches it was during this time that we first met and i was impressed by your strong push towards an international response to the crisis. it helped prevent the world from falling back into trade protectionism and an even deeper recession. and it established to g20 as the key body for international economic cooperation – not only on the field of financial market regulation. the common efforts of the g20 have demonstrated that multilateral cooperation does work – a message which is worth to be repeated these days when some countries do not get tired to doubt the meaning of multilateral agreements. dear agustin, at the high - point of the sovereign debt crisis in euro area, you offered the euro area to benefit from your huge experience. in a 2013 speech you draw lessons from mexico ’ s tequila crisis for the euro area1. two of your conclusions were that “ an exchange - rate system [ or a common currency ] cannot be a substitute for policy discipline ". and you also pointed out that fiscal discipline needs to be maintained after the crisis. this is very close to our thinking here at the bundesbank. it also appeared to me that at that time you were tactfully trying to remind us in the euro area to make progress in crisis resolution. i am aware that many considered the sovereign debt crisis as a risk for the global economy. this is why i am happy to be able to state that matters have improved substantially since then. the euro area has turned from a drag to a driver of growth. in 2017, the euro area grew slightly faster than the average of the advanced economies. the greatest risk is now to assume that all problems are solved. shocks in specific region or specific sectors of the economy can still put the euro area to an endurance test – despite the progress that has been made in the past years. but at least the times where the sovereign debt crisis required the full attention of policy makers, regulators and bank - supervisors is behind us. we are now able to turn some of our attention to other important issues. one such issue is certainly the digital