The 2008 financial crisis was followed by ten years of regulatory discussions. Is the global financial system more resilient today?
Well over ten years after the financial crisis of 2008, some goals are actually undisputed: Taxpayers should not have to pay for the damage when big banks collapse. In addition, the global financial system should become more stable and not pull the real economy in a crisis in a downward spiral. But how can you achieve that? Regulatory authorities and central banks of many countries advise on this several times a year – in Basel.
Basel – center of the global financial system
This is where the Bank for International Settlements, the “Central Bank of Central Banks” is based. Under the auspices of the BIS, there are, for example, the Basel Committee on Banking Supervision or the Financial Stability Board (FSB). The BIS has been one of the main focal points for central banks and regulators since the financial crisis.
The Bank for International Settlements Expand Personal Box Collapse Personal Box The Bank for International Settlements (BIS) was founded in 1930 in Basel. It is the oldest international financial institution. The siting was due to a compromise between the states involved. With the foundation one pursued two goals. First, the settlement of the German reparations payments (Young Plan). Second, the promotion of central bank monetary and monetary policy cooperation at the time of the still-poor gold standard. Although the Bretton Woods Agreement in 1944 recommended liquidating the BIS, the BIS later emerged as an indispensable instrument of the new monetary system. It served mainly as a forum for international monetary policy by the central banks of major industrialized countries. Since the end of the fixed exchange rate system in 1971, new issues have come into focus, such as payment systems, banking supervision and financial stability in general. Source: Historical Dictionary of Switzerland, link will open in a new window
Global standards for strengthening financial systems are therefore often adopted in Basel. The latest set of rules for banks is not without reason called “Basel III”. The new rules are designed to make banks more robust, including by providing more own funds.
Banned risks in the financial market
At a conference to which the BIS had invited yesterday, it was also about how the global financial system has developed in recent years – and what new risks are already evident today. Some observers still believe that the financial system is not sufficiently regulated. The opportunities that would have offered after the financial crisis, you have missed.
The general director of the BIS, Agustín Carstens, disagrees. The global financial system is now much safer than before the crisis, says the economist and former central bank chief of Mexico. The reforms that have been initiated since the financial crisis are extremely successful. “Banks today have more equity, more liquid assets, less debt. In addition, we have created incentives to prevent banks from having to settle them”. Banks are also less involved in risky business today.
Suspended risks
But many risks have not just disappeared. Although the risk potential for banks has been reduced, some risks have shifted to other areas of the financial system, said the BIS Director-General. Some of the risks could be found today in shadow banking and in the fintech industry. “Of course, that presents us with additional challenges for regulators,” says Carstens.
Many such risks are in shadow banking but in professional hands, Carstens believes. These institutions have the opportunity to properly assess and manage the risks.
New risks
According to Agustín Carstens, more skepticism is attached to crypto-currency and crypto-systems. In this area, there are “considerable risks” – for example, many cases in which the currencies have already disappeared or hacked again. There are, according to Carstens, safer and smarter ways for financial transactions.
He does not believe that crypto currencies could soon take the place of traditional currencies: “The payment system we have today is very stable, very trustworthy. We do not need change”.
Also published on Medium.