In a speech delivered at the Eurofi Financial Forum earlier this month, Claudia Buch, Chair of the Supervisory Board of the European Central Bank, discussed the importance of strong banking regulation and supervision for Europe's financial stability, growth, and competitiveness.
Buch acknowledged concerns that current regulation might be too conservative and could potentially hinder banks' efficiency, services, and global competitiveness. However, she rejected the notion that deregulation would promote sustainable growth, arguing that lighter supervision could destabilize the banking sector.
Buch highlighted that robust regulation ensures that banks are resilient and can manage risks effectively. This, in turn, strengthens their ability to support the real economy, especially in times of economic downturns. "More intense supervision reduces banks' risk-taking and improves their stability, with little or no impact on bank performance," she argued. Frequent supervisory reviews are associated with fewer loan losses and higher profitability, Buch said.
Addressing concerns about regulatory conservatism, Buch maintained that European banks are not held to stricter standards than their US counterparts, noting that the forthcoming implementation of Basel III rules would have a limited impact on capital requirements. "There is no evidence that the European approach to supervision and regulation has gone too far or that it limits European banks' ability to compete," she said.
Buch called for a European policy agenda focused on addressing the root causes of low productivity and promoting innovation. She reiterated that relaxing regulations would harm resilience, stating, "Becoming more lenient... would weaken financial stability," urging policymakers to remain focused on long-term growth and stability.
Europe's banking reforms, including the establishment of the banking union and harmonized prudential standards, have led to increased stability, Buch said. However, the European banking supervision framework is still evolving to improve efficiency and effectiveness, she emphasized. Enhancements to the Supervisory Review and Evaluation Process (SREP) are part of these reforms, aiming to make supervision more intrusive and focused on risk management.
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