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Mr. Restoy mentions the efforts currently under way to finalise the post-crisis regulatory reforms, of which Basel III is a significant component. This is certainly not the first time the Basel Committee has gone through difficult negotiations to reach an agreement, and he is sure it won't be the last. But he is confident that the Committee will once again achieve a successful outcome.
Indeed, having recently experienced an extremely costly financial crisis and the attendant disturbances in the functioning of the international financial system, the need for robust international regulatory standards is more evident now than ever before. In a world in which internationally active financial groups transmit risks seamlessly across borders, there should be a shared interest across all jurisdictions that such groups meet sufficiently stringent standards of solvency and liquidity.
“Moreover, to the extent that an integrated global financial system contributes to effective risk-sharing across jurisdictions and regions and amplifies investment and funding opportunities for firms and households wherever they are located, it is vital that we do what we can to facilitate the operations of international players and promote a level playing field through the harmonisation of both prudential requirements and, ideally, supervisory practices.”
However, globally harmonised standards and practices need not be applied to all banks in all jurisdictions. It may be appropriate to apply simpler rules and less intrusive practices in the case of smaller, less sophisticated banks, as is the case now in many jurisdictions. But at the same time, there is need to keep in mind that the application of the proportionality principle should not compromise the stringency of the prudential requirements. It should also carefully weigh potential distortions in the normal functioning of market forces.
In any event, notwithstanding the current emphasis on finalising the last few pieces in the post-crisis reforms, Mr. Restoy anticipates that the focus of the international regulatory community will soon shift from standard setting to policy implementation matters. For its part, the Basel Committee signalled this shift in its recently published 2017-18 workplan, which has the Committee paying greater attention to supervisory matters. And through its various activities, the Financial Stability Institute will support authorities' renewed focus on implementation.