stefan ingves : implementing the regulatory reform agenda – the pitfall of myopia speech by mr stefan ingves, governor of the sveriges riksbank and chairman of the basel committee on banking supervision, at the federal reserve bank of chicago annual international banking conference, chicago, 6 november 2014. * * * the subject of this conference is indeed very timely – seven years after the outbreak of the financial crisis, there has been substantial progress in the post - crisis regulatory reform agenda, with a number of important milestones reached. therefore, now is a good time to take a step back and ask how the different bits and pieces of the regulatory framework fit together. and, more specifically – have the vulnerabilities revealed in the crisis been adequately addressed? are additional adjustments still necessary? or, conversely, have we gone too far and created a regulatory frankenstein ’ s monster that no - one has full control over and that stifles lending and economic growth? this latter view is one that i sometimes hear when meeting representatives of the banking industry. the feeling seems to be that we are overwhelming the financial system with a regulation tsunami with too many reforms being implemented too soon. this will lead to unacceptable consequences in the form of higher funding costs, reductions in market liquidity with market - makers pulling out of markets, collateral shortages ; and many banking activities simply disappearing, or moving to the so called shadow banking sector. and indeed – the financial crisis has led to a comprehensive response from regulators and policymakers across the world. compared to the pre - crisis era, international banks will face : – substantially higher capital requirements, – higher demands on the quality of capital, – a leverage ratio, – an international liquidity framework, with both short - term and structural liquidity requirements ( i am proud to note that the basel committee, less than a week ago, published the final standard for the net stable funding ratio, nsfr ), and – a regulatory framework for global systemically important banks ( gsibs ). when you add to this work related to reducing rwa variability and disclosure, you end up with a pretty impressive list – a list that represents an unprecedented leap forward in terms of global banking regulation. so then, how do i see this? do i claim to know how all these new rules will play out together? am i confident that there will be no inconsistencies and contradictions? no, definitely not. we have every reason to be humble in this respect. monitoring

and assessing the effects of reforms will therefore be imperative. will the reforms be costly for banks in the short term? yes, they will. will banks have to adjust their activities? yes, a return to pre - crisis banking behaviour is neither appropriate nor viable. do i therefore think that regulation has gone too far and that parts should be undone? no, not at all. bis central bankers ’ speeches in this presentation i will try to explain why i think this is so. i will also speak about what is still lacking and the regulatory challenges we face ahead. why we shouldn ’ t back - track on regulation there are several reasons why i don ’ t think the regulatory agenda has gone too far. first of all, my experience is that important regulatory and structural reforms are all too often hindered by myopia. people tend to focus on costs and pains in the short run, leaving aside the longer term gains that reforms aim to achieve. the perceived short - term costs are simply much easier to sell politically, compared to the abstract benefits of lowering the risk of crises. this is especially so, since the benefits may accrue only to future generations – a group that has difficulties making its voice heard in today ’ s policy debate. this time has been no exception : for years, people shied away from necessary actions to strengthen the financial system. when the crisis hit, perceptions changed, providing a window of opportunity for regulatory reforms that were long overdue. however, we mustn ’ t begin to close this window and lose sight of why we are undertaking these reforms. let me start with a reminder of the regulatory framework before the crisis. both basel i and ii included a risk - weighted capital adequacy framework. however, for the last 20 years banks ’ balance sheets ballooned, while their equity failed to take off. for example, from 1993 to 2008 the total assets of a sample of what we call global systemically important banks saw a twelve - fold increase ( increasing from $ 2. 6 trillion to just over $ 30 trillion ). but the capital funding these assets only increased seven - fold, ( from $ 125 billion to $ 890 billion ). put differently, the average risk weight declined from 70 % to below 40 %. the problem was that this reduction did not represent a genuine reduction in risk in the banking system. to take an even more concrete example from my own country : during the past twenty years or so, the risk weights for retail mortgages in