Anchoring Stability in a Rules-Based International Order

In her keynote address at the recent Delphi Economic Forum X, Sharon Donnery, a Member of the Supervisory Board of the European Central Bank (ECB), provided a comprehensive overview of the current risk landscape facing the European banking sector and the supervisory approaches being used to address these challenges.

Donnery opened by emphasizing the importance of a level playing field in international banking. "A consistent level playing field in international banking is crucial, not only for financial stability but also to enable banks to effectively operate and compete across borders." Donnery argued. "However, this playing field must be more than just level: it must be fundamentally sound."

Donnery addressed growing calls for simpler financial rules, cautioning against weakening regulatory standards. Instead, she proposed that harmonization — rather than reduction — of rules is the key to managing complexity in Europe's regulatory framework.

Clarifying the concept of risk, Donnery explained that risks arise when external threats — such as economic downturns, climate change, or geopolitical instability — intersect with internal vulnerabilities — like weak governance or poor internal controls. She framed these elements as risk drivers, stressing that supervision must tackle both external and internal sources of risk.

Donnery highlighted the need for robust internal structures and sound risk management practices. She also reinforced the importance of strong supervision to prevent financial crises and prepare the banking sector for emerging challenges.

"Geopolitical tensions, cyber threats and market volatility underscore the need for a robust foundation," Donnery concluded. "That foundation is our multilateral rules-based framework, anchoring resilience and ensuring stability. Only by preserving and strengthening this rules-based international order and harmonising rules where possible can we confidently navigate uncertainty and safeguard the resilience essential to our financial system."

For more from Sharon Donnery, read her In Focus interview from the 2024 Compendium.