andreas dombret : regulatory reform in europe – mission accomplished? speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the institute of international bankers ( iib ) annual conference, washington dc, 2 march 2015. * 1. * * introduction ladies and gentlemen thank you for granting me this opportunity to speak at the iib annual conference. it is a pleasure to be here. in my speech today, i want to answer the question whether the mission of regulatory reform in europe has been accomplished. allow me to begin with a quote from the movie “ mission impossible ” : “ every search for a hero must begin with something which every hero requires, a villain ”. for the topic of regulatory reform, i want to paraphrase that quote as follows : “ every search for a solution must begin with something which every solution requires, a problem ”. we all know that the problem in the banking system was the financial crisis and in my view, the solution is regulatory reform. let us therefore take a closer look at what has been done in post - crisis reforms in europe and beyond. 2. the first mission : regulatory reform one of the main lessons from the financial crisis was that the rules of the banking system were insufficient. we saw excessive risk - taking, insufficient loss absorbing capacities and banks that were “ too big to fail ” – just to name some of the problems that led to the crisis. over the last seven years since the collapse of lehman brothers, significant progress has been made on the regulatory agenda. the most important regulatory measure was the basel iii framework, which introduced stricter capital requirements and new liquidity rules. in europe, we have done a lot of work to implement these requirements – first and foremost with the crd iv and crr. these rules safeguard harmonised implementation of the basel iii framework throughout all member states. on a side note, the latest basel iii monitoring exercise is due to be published tomorrow. i am certain it will confirm the impression that most large internationally active banks already meet the fully implemented capital requirements. i am also quite optimistic that, on average, all internationally active german banks will fulfil the basel iii requirements with regard to the cet1 ratio. we should furthermore see that german banks have significantly improved their leverage ratios. in international comparison, there is still room for further improvements, however. but still, banks ’ loss absorbing capacity is far better than it was prior to the financial crisis. when basel

of the regulated banking sector into the unregulated shadow banking sector. this development is something regulators have to watch closely. without any doubt, shadow banks can become a source of systemic risk, especially when they are highly interconnected with the regular banking system. it is therefore of the utmost importance to monitor shadow banks ’ activities and try to regulate them adequately. at their 2014 brisbane summit, the g20 agreed on a new roadmap for regulating the shadow banking sector. work is being conducted simultaneously by the fsb, the basel committee and iosco. but the ambitious reform agenda is far from completed. in my view, a key task on the way towards transforming shadow banking into resilient market - based financing is now to identify areas where additional fsb recommendations are needed and where existing recommendations should be made more precise. we have to bring forward this reform agenda with all our efforts. let me conclude the discussion of regulatory reform with something that seems very important to me. each of the regulatory projects i have discussed calls for international cooperation. if we do not coordinate our approaches towards regulation, we will create a fragmented financial system with vast opportunities for regulatory arbitrage. when all is said and done, we all pursue the same objective : a stable financial system – certainly at the national level, but it is equally important at the global level. as european and us regulators, we therefore must work together in an effort to avoid any form of fragmentation of the regulatory space. the issue of derivatives oversight is just one example of where international cooperation is essential. 3. the second mission : supervisory integration in europe ladies and gentlemen, i have discussed some of the regulatory answers to the financial crisis. but regulation is only one answer to the crisis. the crisis has also shown that banking supervision failed to keep pace with the increasingly international developments in the banking sector. instead, it remained confined within national borders. in europe, the response to this observation has been a leap in integration. this leap in integration is mainly characterised by the establishment of the european banking union, which will comprise of a single supervisory mechanism, a single resolution mechanism and harmonised deposit insurance. the single supervisory mechanism, the first pillar so far, went to work on 4 november 2014. on that date, the ecb assumed responsibility for supervising the 120 largest banks in the euro area – with the accession of lithuania, the number of supervised banks has risen to 123. these 123 banks account for more than 85 % of the aggregate balance sheet of the