Financial Regulation post-financial Crisis

Transcription

1 Financial Regulation post-financial Crisis Juan A. Marchetti (WTO) OECD Global Forum on Trade TRADE IN SERVICES: WHAT IS AT STAKE AND WHAT IS TO BE DONE Paris, 8 November 2012 Remembering where we are coming from Major contributing factors to the GFC: o Uncontrolled liquidity expansion worldwide o Unsustainable high leverage o Inadequate governance, accountability and remuneration practices within financial institutions o Growth of instruments (securitization), entities and markets ( shadow banking ) weakly regulated or falling outside the regulatory perimeter, but which helped spread risk o Rapid financial innovation that outpaced risk management and supervisory practices o Incentives for regulatory arbitrage 1

2 The financial crisis prompted broad State intervention Monetary policies o E.g. Quantitative easing, liquidity, interest rates Direct interventions o E.g. Bail-outs, nationalizations, guarantees. Regulatory reforms Regulatory reforms under way are very broad and ambitious Key objectives (FSB agenda) Strengthening bank capital and liquidity requirements Raising standards for risk management Addressing risks posed by SIFIs & improving resolution regimes OTC derivatives markets regulation Strengthening accounting standards Strengthening adherence to international standards Reforming compensation practices Developing macro-prudential frameworks and tools Expanding and refining the regulatory perimeter 2

3 Regulatory reform under way (1) Area of regulation Capital requirements Liquidity requirements OTC derivatives Securitization CRAs Elements of reform Higher overall capital levels Better quality capital Capital conservation buffer Countercyclical capital requirements G-SIFI surcharge Quantitative liquidity requirements Monitoring of foreign exchange liquidity Mandatory clearing of trades by CCPs Trading through public venues/markets/platforms Risk retention mechanisms Underwriting standards Disclosure requirements Restricted use of CRAs ratings Suggestions on alternatives to CRAs ratings Tougher regulation of CRAs Regulatory reform under way (2) Area of regulation Structural changes Compensation and corporate governance Taxation of Fis Resolution regimes Elements of reform Extra-capital on G-SIFIs beyond Basel III (e.g. Switzerland) Limitations on proprietary trading in banks (e.g. Volcker Rule) Ring-fencing of retail bank activities (Vickers Commission) FSB principles for sound compensation practices Pillar 3 disclosure on remuneration Resolution funds of 1% of insured deposits (EU draft) Bank levies (UK) Enhancement and extension of resolution regimes to non-banks 3

4 Some concluding remarks Regulatory pendulum is swinging back, but boundaries of new paradigm are not yet fully defined Regulation is becoming more stringent and the perimeter of regulation is being broadened o Impact on cost and availability of finance? o Impact on bank competition? Regulatory reform is evolving in a context characterized by home bias in lending, banks deleveraging, EMs lending, largely unchanged structure of financial intermediation, and the appearance of new sources of non-bank finance [or are these effects motivated by new regulations?] More stringent regulatory requirements Bank Regulatory Capital to Risk-Weighted Assets (in per cent, average per group) Advanced Economies Emerging and Developing Economies Central and Eastern Europe Developing Asia Middle East & North Africa Sub-Saharan Africa Western Hemisphere Source: IMF Financial Soundness Indicators 4

5 Nov Banks modest progress in cost Cost and income (% of assets) cutting so far Total income Operating cost Cost-to-income ratios Euro area Other European United States Source: BIS 82 nd annual report Home bias in bank lending 5 Ratio of foreign to total assets All banks 5 Ratio of local to foreign assets 1 European banks Non- 1 European banks Borrowers in EMEs Borrowers worldwide Source: BIS 82 nd annual report 5

6 Nov-2012 but increasing relevance of emerging market bank lending 2.0 Share in global lending Foreign claims Source: BIS 82 nd annual report Bank deleveraging exacerbating tight corporate credit conditions? Sources: Bank of England, Financial Stability Report, June (a) Leverage ratio is defined as assets divided by capital. Assets are adjusted for cash items, tax assets, goodwill and intangibles. Capital includes total shareholders equity adjusted for minority interests, preferred shares, goodwill and intangibles. Assets are also adjusted on a best-efforts basis to achieve comparability between US GAAP and IFRS with respect to derivatives and off balance sheet vehicles. (b) Pro-forma data are used for RBS from 2007 to (c) End-2011 for major UK banks except for National Australia Bank (31 March 2012) and Nationwide (4 April 2012). 6

7 Nov-2012 Structure of intermediation remains largely unchanged Share of financial system assets, by type of institutions 5 1 Banks Insurers and pension funds Other financial intermediaries Source: BIS 82 nd annual report Thank you 7