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

npl ratio in 2016 stood at roughly 1. 5 per cent on average. so the fundamental problem – the very heterogeneous distribution of npls across eu member countries – remains unsolved. therefore, we need to make further progress on this front before we can establish a european deposit insurance system. and our efforts need to go beyond preventing risks from building up in the future. we also have to cleanse balance sheets of existing stocks of npls. so far, the european central bank and the european commission have both only presented measures 3 / 4 bis central bankers'speeches aimed at improving risk provisioning for future npl flows. high and heterogeneous levels of npls are one key impediment to taking further steps towards a common deposit insurance scheme. another stumbling block is related to sovereign exposures on banks ’ balance sheets. due to regulatory privileges, sovereign exposures are not – or only thinly – backed by regulatory capital. furthermore, unlike other asset classes, there is no limit to the volume of sovereign bonds a bank can hold from its home country. this has forged a close link between the solvency of countries and the solvency of their domestic banking sectors. and this link is even closer today than it was before the financial crisis in 2008. regulatory reforms introduced since the crisis have focused on one side of this contagion channel : measures were introduced to reduce the risk that distress in the banking sector will spread to the public sector. contagion in the other direction – from sovereigns to banks – has not been addressed so far. as long as this remains the case, a european deposit insurance system should not be established, since it would indirectly insure sovereign default risks. it is thus all the more important to move forward at the european level and kick - start a paradigm shift to end the regulatory privilege that sovereign exposures enjoy there. the sooner we get this done, the sooner we can take the next step towards a common deposit insurance system in europe. but to reiterate once more : risk reduction needs to come first if we want to take the steps in the right order. we should not forget that we already have a system of national deposit insurance schemes in the eu which guarantees deposits up to 100, 000 euro. so there is no reason to take hasty decisions now that we might regret in the future. i have named four areas that we need to address : npls, sovereign exposures, insolvency regimes, and resolution