Speech by Dr Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank, in which he revisits the topic of “Ways to a stable financial system”.
Mr. Dombret says: “We have made considerable progress since the financial crisis erupted. The banking and financial system is a great deal better off these days. We have created a toolkit to make future crises less likely and make institutions more resilient to withstand any turbulence that does occur. Banks have more capital, and they are managing their risks better.”
But there is a danger that even the best regulation will remain piecemeal if its rules are not applied consistently. Only the rigorous and consistent supervision of credit institutions can ensure that bubbles are less likely to form and that, in an emergency, there is enough capital to absorb losses.
He stresses: “When it comes to applying the rules in future, we should heed Minsky’s key message, which is that, for all their undeniable merits, financial markets do always have a tendency to form bubbles and thus slip into financial crises; also, that these bubbles build up in upbeat economic spells – which is when nobody wants to talk about it.”
To stall the formation of bubbles and to equip banks to cope with headwinds, supervisors and policymakers need to evaluate the impact on society as a whole. But this will only happen if the change in attitude takes hold among policymakers and supervisors.
Full speech
© Deutsche Bundesbank
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