“Many regulatory changes can support the economy… a strong capital position goes hand in hand with more credit and robust liquidity”; Jaime Caruana.
Naturally, the head of the BIS is referring to the “advances” that have taken place in terms of regulation and supervision of the international financial sector. Carney himself after Brexit, or the Chair of the Fed in her recent appearance before Congress, also pointed out that their respective financial systems are solid, liquid, and resilient. The resistance and stress tests regularly applied to them prove as much. Ultimately, the remaining perception is that the financial sector will not be the trigger for a new financial and economic crisis; in fact, it is a fundamental piece in avoiding one. Wherever and whenever this potential future crisis may come from.
However, following Jaime Caruana’s recent speech at his organization’s international meeting (June 26), finalizing the Basel III regulatory framework, repairing the balance sheets of financial institutions, and restoring the basis for sustained profitability in the sector constitute the priorities that international financial authorities must address. In this sense, it is important not to overlook the fact that we are talking about global priorities under challenges that are also global. The financial sector, with solid and liquid financial institutions, is essential for financing the economy. Financial stability, masked under distorted financial markets and artificially low risk premiums, does not fulfill the condition of providing financing to economic agents while simultaneously providing essential means of payment for economic activity. It does not do so in a stable manner open to everyone (SMEs, mortgages, and consumer credit) in the first case; fintech and other potential competitors to banking, regarding means of payment, are in my opinion more of an incentive and a challenge for innovation by financial institutions. And these have amply demonstrated in the past how they can successfully face the changes required by their customers.
