andreas dombret : living with fragmentation – post - brexit realities in financial services keynote speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the aima global policy and regulatory forum, dublin, 20 march 2018. * * * 1 introduction ladies and gentlemen thank you for the kind introduction. it is a pleasure to be in dublin and at the 2018 aima forum. " managing a fragmented world ” is, in my view, a well - chosen topic. most economic policymakers currently have their hands full trying to escape the doom loop of a trade war and a potentially hard brexit. at the same time, banks, investors and most other firms have to prepare for these worstcase scenarios – not least, because supervisors urge them to. and of course such fragmentation in financial services and its regulation may cause nightmares for many in the industry as well as for policymakers. and i do understand that – because it implies a great deal of uncertainty. but we should not, i believe, panic : greater fragmentation seems inevitable after brexit. though, repercussions will not be as bad, as some fear, when we succeed in managing this greater fragmentation constructively – that means without resorting to nationalism that would just be destructive for all of us. my topic today, then, is to look at the estimated extent of fragmentation in regulation of financial services after brexit and what we should do about it. 2 brexit and financial services in brexit negotiations common ground still seems hard to find. even the basic principles of a new partnership remain vague. given that and because time for preparation is running out for firms, uncertainty among businesses weighs heavier every day. from an economic and financial market perspective, the two most important questions probably are : will there be a free trade or a comparable agreement? would a possible free trade agreement also include financial services? in my view, there is substantial scope for a general free trade agreement. the main question to me is therefore how far - reaching can this future relationship be. for example an agreement without tariffs would be of high value and is possible. another, less clear and highly complicated question is how to deal with non - tariff barriers like product standard regulations. however, with a view to the financial services sector, a far - reaching free trade agreement is rather unlikely given the uk ’ s aspired exit from the single market and the customs union. likewise, i am rather sc

westphalia and brandenburg – have recently followed berlin ’ s lead and commissioned tailored sustainability indices as a benchmark. this involves assessing enterprises according to esg criteria ; the bundesbank can apply the resulting benchmark to the portfolios of the federal states. the public sector is therefore leading by example. this is crucial to the acceptance of sustainable finance in germany. as guardians of financial stability and as banking supervisors, we central banks see climate change as a source of financial risk. we need to get to grips with the effects of climate change on the stability of individual institutions and on the stability of the financial system overall. that ’ s why central banks are calling for greater market transparency and better data availability. who is affected by climate risks and how – via loans to certain industrial sectors, for instance? these are some of the important issues that the bundesbank will also be tackling in this year ’ s financial stability review. financial institutions need to pay proper attention to climate risks in their risk management. in terms of financial supervision, key factors therefore include better risk models at individual institutions and better awareness of how climate risks are distributed within the financial system. financial supervisors will need sophisticated methods to identify the vulnerabilities caused by climate risk more clearly. a “ climate stress test ” should form part of our toolkit. but before this can happen, we need the right data and a better understanding of the basic issues. we need to apply a longer time horizon to our entire analytical framework if we are also to factor in longer - term climate effects. so our intended course of action is not simple, but it is effective – and we are not alone. two weeks ago, i was in washington, d. c., where i took part in a panel discussion with kristalina georgieva, the new head of the imf, who emphasised that the imf is losing no time in preparing to incorporate climate risk into its country analyses. 3 b. policy the imf is a sort of interface between central banks and policymakers. this brings me to the most important of the parties involved when it comes to creating a framework for the transformation we need : political stakeholders. the framework established by policymakers needs to be environmentally and economically effective. it must offer planning certainty to the real economy and the financial markets alike. the key is to keep the costs of transitioning to a low - carbon economy as low as possible for the economy and to distribute these costs efficiently and, at the same time,