Streamlining Regulation While Safeguarding Stability

In a speech delivered earlier this month, Pablo Hernández de Cos, General Manager of the Bank for International Settlements (BIS), examined how authorities can streamline financial regulation while safeguarding stability and addressing new risks.

Hernández de Cos opened by noting that, in the nearly 20 years since the Global Financial Crisis, reforms have made “the global financial system safer, stronger and more resilient.” Banks now hold “substantially more and better-quality capital,” with risk-based CET1 ratios at 14.3 percent compared with less than 10 percent in 2011. Liquidity positions have improved markedly, and systemic risk measures have declined. He concluded that “the reforms have yielded substantial net benefits,” though some elements, such as buffer usability during stress, still need attention.

He acknowledged that regulation has grown overly complex. “The Basel Framework now stands at around 1,850 pages, which is longer than The Complete Works of William Shakespeare,” he observed. He suggested practical ways to improve efficiency without weakening resilience: simplifying the capital stack, harnessing technology such as the BIS Innovation Hub’s Project Mandala, applying proportionality, and reducing reliance on complex rules by equipping supervisors to provide more targeted assessments of risk.

Hernández de Cos then turned to emerging risks. He warned that vulnerabilities are shifting to non-bank financial intermediaries, digital assets, and third-party dependencies. “Risks are migrating to insufficiently regulated corners of the system,” he said, where they can spill back into banks during stress.

He urged completing the full implementation of Basel III before any major changes and insisted that future reviews must rest on rigorous evidence. “We regulate to protect citizens, to maintain trust in the financial system and to ensure that finance serves the real economy,” Hernández de Cos concluded. “The work is not finished.”