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04 May 2010

German Bundesbank Axel Weber: Complement Basel II with capital surcharges


Weber underlined that Basel II is only part of the solution when talking about the treatment of systemically important financial institutions. Capital surcharges, better resolution regimes and a stronger market infrastructure might also be needed. However, he warned against over simplistic solutions

Speaking at the 9th Munich Economic Summit, Deutsche Bundesbank Axel Weber warned that accuracy is more important than speed when reshaping the financial system. Therefore it is essential not to implement over simplistic solutions, he said.
 
While regulation on the microprudential level is to have a first line of defence it has to be complemented with a macroprudential stance which takes into account the stability of the financial system as a whole.
 
Although Basel II is part of a solution, broader reforms are necessary. These might include capital surcharges for systemically important institutions, better resolution regimes as well as a stronger market infrastructure.
 
Talking about additional taxation for the banking sector, Weber underlined that this can only serve as “an inferior instrument in terms of internalising the effects of risky activities on financial stability” and called on policymakers to go give preference to the implementation of the Basel II framework.
 
He pointed out that the financial crisis has taught the following very broad lessons:
·         There is a need to strengthen regulation
·         The regulation should focused on the microprudential level, complement it with macroprudential supervision
·         Ensure international harmonisation and cooperation is essential.
He concluded by saying that “As we are now hopefully entering better times, there is a certain danger that some major issues on the reform agenda might fall prey to dwindling commitment and political interests. However, this must not be allowed to happen, as only a coordinated and harmonised effort will enable us to ensure financial stability and thus pave the way for steady and sustainable global development.”
 



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