sabine lautenschlager : how can prudential regulation foster growth? speech by ms sabine lautenschlager, member of the executive board of the european central bank and vice - chair of the supervisory board of the single supervisory mechanism, at the frankfurt finance summit, frankfurt am main, 16 march 2015. * * * supervisors can contribute to sustainable economic growth by ensuring that supervised entities are resilient to plausible shocks, properly managed, adequately capitalised and subject to an efficient risk management and the right incentives. the european single supervisory mechanism takes a medium to long - term perspective on this, resisting those who argue for short - term relief. the ssm ensures that banks can deliver in their tasks in all phases of the economic cycle and thus are able to provide the economy with the financial services that corporations, smaller firms and citizens need. * * * it is my pleasure to open this dinner with a question that may seem quite straightforward, but whose answer is far from intuitive, especially from the perspective of a supervisor : “ how can prudential regulation foster growth? ” i must admit that when i first saw the topic of this short speech i was tempted to turn this into a brainstorming session. i am sure that many of you have innovative ideas on how to foster growth by means of prudential regulation and supervisory action. some might suggest restraint on the side of regulators and supervisors as a way of fostering growth – and they may be right regarding some of the many topics that were regulated over the last seven years. but if you now expect me to provide comfort with a regulatory break or even promise supervisory leniency, i am afraid you are in for a disappointment. the financial crisis has shown that there is little more damaging for sustainable growth than a malfunctioning banking sector. that is why – after a long period of deregulation – governments around the world decided to strengthen regulation and supervision. the ultimate objective of these reforms has been the same since the 1930s : regulators and supervisors have to ensure that the banking sector is resilient and provides the economy and society at large with its key services, even under severe stress. as a supervisor, our most valuable contribution to economic growth is to do our job – by implementing regulation consistently, by closely monitoring supervised institutions in a forward - looking, risk - based and proportionate way and by taking timely and determined action when needed. the ssm has the responsibility and privilege to go a step further. by harmonising

and supervisors have to work with more than 150 different options and national discretions in the single rulebook. these options and national discretions are often a legacy resulting from different market structures and legal environments. many of them have material effects on the level of prudence of the bis central bankers ’ speeches framework and on the comparability of capital ratios ; they also add an additional layer of complexity as well as a source of regulatory arbitrage, of risk to the financial sector and of competitive disadvantage for banks established in member states that have chosen the most virtuous standard. let me take one example related to the transitional arrangements in the definition of capital. the various phase - in arrangements of the crr capital definitions within the ssm account for an overall €126 billion gain compared to the “ fully - fledged ” definition. this amount is unequally shared across national banking systems as clearly shown in the comprehensive assessment report published last year. it is up to the ssm to use its power for exercising options and national discretion wisely. we aim to improve the comparability of capital ratios. in the medium to long run, this will permanently increase the resilience and service capacity of banks. it is up to the ssm to use its power for exercising options and national discretion wisely. we aim to improve the comparability of capital ratios and create transparency by providing reliable information to citizens and market participants. in the medium to long run, this will permanently increase the resilience and service capacity of banks. of course, harmonisation cannot be a goal in its own right. exactly the same is true for national specificities : if national specificities contribute to a more stable banking system, the ssm will be eager to preserve or even promote them. but if national characteristics are only the reflection of unquestioned traditions and regulatory capture, they should be eradicated. as with the srep decisions, we expect positive outcomes in terms of prudence, consistency and stability of the framework to outweigh by far the adjustment costs that each national banking system will face by converging to the high standards. let me conclude, as dinner is awaiting us. while banking is a complex business, and as such it cannot be naively regulated or supervised, there is of course always room for improvement. therefore, you will be pleased to hear that simplicity and comparability of prudential standards have become a top priority for the basel committee on banking supervision, and that regulators