05 March 2018

Deutsche Bundesbank's Dombret: Where do we go from here? The future of US-EU financial relations following the finalisation of Basel III

Mr Dombret says:

"When I was going to prepare this speech, I asked myself: "What do all of us in this room have in common?" Do bankers and supervisors across the atlantic share the same convictions? Do we have the same ideas on financial policy? Honestly, I am not perfectly sure on this. So I assume there is at least one major area of common ground, and that is the uncertainty we feel with respect to how things will proceed."

Take global banking regulation – and Basel III, in particular. On the one hand, EU has just finalised Basel III, the global minimum standard for international banks. On the other hand, parliaments and governments in the United States and the European Union are debating regulatory changes that seem to diverge from this global compromise. Banks remain uncertain about precisely what the regulatory future holds.

Moreover, this uncertainty does not stop at finance. The US administration’s economic policy announcements, as well as Brexit and other elections, are causing many to call into question the extent to which nations will actually coordinate their future economic policies.

This tension between the global and national level creates political uncertainty. For example, many enterprises feel insecure about the economic policies under which they will have to do business in the future. Likewise, bankers are asking how much of Basel III will be implemented in their jurisdictions and wondering about the individual paths that some countries will take.

This tension between global harmonisation and cooperation, on the one hand, and countries’ demands for individual approaches, on the other, will be one of the main fault lines – if not the crucial one – in future US-EU financial relations. Let me elaborate on this challenge.

Mr Dombret accepts that EU and US have distinct preferences and rules. That some of these differences were overcame is a remarkable achievement, but "we should not try to make everything equal when it’s not" he says.

He concludes:

"It is our duty to rebalance global economic policy cooperation with the demand for national sovereignty. We should value the maturing of cross-border finance at a hopefully more sustainable level and composition; we should honour the commitment made in the context of finalising Basel III while nevertheless accepting its limitations for non-international banks; and we should overcome our reservations about close supervisory coordination, as this will become more important in the future.

"The future of US-EU financial relations will be more complicated. But this complication could prove beneficial – rather than leading us into an ice age, it could help our relationship mature."

Full speech

© Deutsche Bundesbank