sabine lautenschlager : banking regulation and supervision – you can't have one without the other speech by ms sabine lautenschlager, member of the executive board of the european central bank and vice - chair of the supervisory board of the european central bank, at the 9th annual efr stakeholder round table on & quot ; financial fragmentation or integration & quot ;, brussels, 22 march 2018. * * * the financial crisis showed what can happen when banks are not safe and sound. so the goal is to make banks safe and sound, and avoid future crises. to that end, we have revamped regulation, and we have strengthened supervision. it ’ s indeed vital to work on both fronts. without supervisors, rules would have little effect ; without rules, supervisors would have no job – or at least no firm basis for doing their job. you can ’ t have one without the other : regulation and supervision need to be aligned. but are they? let us take a look at the euro area. in 2014, banking supervision was transferred from national to european level. and since then, we ’ ve achieved a lot. however, we could do more, and that brings me to regulation. how european is regulation? well, it ’ s true, of course, that there is a single rulebook. but by and large, regulation in europe remains fragmented to a degree that makes it hard to reap the full benefits of european banking supervision. and the problem starts with the scope of that supervision. large investment firms and thirdcountry branches are still not covered by it. this situation should be changed to restrict regulatory and supervisory arbitrage. then there are the options and national discretions contained in european regulation. some of them are still exercised differently across the euro area. it ’ s up to legislators to harmonise them. the same is true for fit and proper assessments. the rules here are also very diverse. and finally there are the tools for crisis management. we still have no common approach to such things as insolvency laws and moratoriums. this too needs to change. likewise, the rules for early intervention measures need to be streamlined. all this begs the question : is the banking union living up to its full potential? i would say : it ’ s not, at least not yet. but it could if the rules were further harmonised. now let ’ s turn to the global level. with basel iii finalised,

. financial services are rapidly expanding over years due to the financialization of economic activities, larger global economic integration, extended use of information technology, and liberalization of foreign exchange regimes. although this industry is highly regulated, ethical lapses do occur, and there are reasons why these misdeeds may happen. first, self - interest sometimes translates into greed and selfishness. this greed becomes a kind of accumulation fever and if accumulation becomes the addiction, there ’ s no end of it. second, we too often reduce everything to an economic entity and say that the fundamental purpose of a business is to make money, maximize profit, or “ maximize shareholder value ”, or something like that. the recent financial crises have revealed that the elements of greed, followed by unethical practices, and excessive risk taking unobserved by the regulators have been instrumental to destabilize the global financial system and a lot of question has been raised on the efficiency, rationality, and morality of those involved in financial services. the professional ethics of the board members, senior executives, supervisors, valuators, surveyors, auditors, rating agencies, brokers, and market makers relating to financial institutions and services has often come to question following the systemic failure of the financial service industry in the recent past. as legal provisions are never enough in order to fully address unethical practices, professional ethics has to be maintained if a socially responsible financial industry is to foster. distinguished participants, ladies and gentlemen, while we are talking about business ethics for a prosperous nepal, we have to think of happiness, dignity, wellbeing, and an enlightened citizenry. prosperity necessitates economic development which comes from economic growth and a fair distribution of income, assets, and opportunities. high economic growth requires investment ; and in a country like ours, we need a lot of foreign investment. if there is an unethical practice in the judiciary, in the government, and in the professional jobs like project appraising, accounting, auditing, rating, valuating, surveying or agency functioning, it would be difficult to mobilize foreign resources for higher economic growth. even international trade can be adversely affected if unethical means are applied to produce goods and services meant for exports. overall, prosperity earned by unethical means would fall short of happiness and social justice. let me conclude by saying that doing socially responsible business leads toward ethical business practices. doing things legally is necessary but not sufficient for