Sylvie Matherat
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Transcript Sylvie Matherat
LSE and Deutsche Bank Conference on
« Reforming the Global Architecture of Financial Regulation »
Macro-prudential and regulatory
reforms : what is needed to make
the global financial system less
crisis prone?
Sylvie Matherat
Director, Financial Stability
Bank of France
19/03/2009
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Introduction
These reforms are needed as there is
no way out for the economy if the
financial system is not back on track:
On a short term basis: an urgent need to fix
financial situation of credit institutions
On a medium /long term basis: a new
regulatory/prudential oversight for a new
financial system;
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Outline
The new framework is twofold
1/ a need to revisit individual regulation and
prudential oversight
2/ a need to « invent » a macro prudential
framework
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Individual regulation/prudential oversight
This new micro prudential
framework needs to look at:
incentives
risks
institutions
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Individual regulation/prudential oversight
Improvement of incentives:
Accounting rules: reforms needed to prevent
short termism (day one profit, fair value gains)
Prudential rules:
Avoid regulatory arbitrage by increasing the capital
coverage of trading activities
Limit procyclicality: VAR through the cycle…
Corporate governance: better implication of
board of directors, remuneration policy
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Individual regulation/prudential oversight
Better risk coverage:
Tail risk can happen
Off balance sheet risks do not disappear (no
clean break/reputation risk)
Funding/liquidity/mismatch risks: they do exist
and have a price
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Individual regulation/prudential oversight
Increase regulatory oversight:
Banks, non banks
Hedge funds, private equity
Rating agencies
Not only deposit-taking institutions but all intervention in
the financial system need to be subject to some form of
oversight: leads to the necessity of adopting a macro
prudential approach.
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A new macro prudential framework
A new macro prudential framework:
Its rationale
Its objectives
Its actors
Its tools
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A new macro prudential framework
A new macro prudential framework,
why?
Good regulation and incentives at micro
prudential level does always not make a good
macro economic policy
Harmonization of rules leads to mimetic
behaviour
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A new macro prudential framework
General objectives:
Limit risks of distress for the financial
system as a whole
Reduce procyclicality of financial regulation
Prevent excessive risk taking/leverage in
order to avoid disconnection between
financial sector and the real economy
Enhance crisis resolution
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A new macro prudential framework
The Actors:
Need for an international financial architecture ensuring
level playing field
International Financial Institutions: IMF and FSF
Central banks
expected to collaborate for the regular conduct of Early
Warning Exercises
having a double role in financial stability: crisis
management (liquidity provision, swap agreements) and
macro prudential surveillance
Colleges of supervisors
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A new macro prudential framework
The tools
Possible use of microprudential tools:
Countercyclical capital buffers,
Dynamic provisioning and valuation reserve,
Leverage ratio including off-balance sheet items
Need to enhance institutional capabilities for
systemic risk detection:
So far, limited efficiency of early warning indicators,
Need to improve information on cross-border banks’ exposures
and systemic institutions
Need to have a better grasp of interbank markets developments,
and on price determination
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Conclusion
Impossibility of preventing financial crises
But need to limit procyclicality of financial regulation
and regulatory arbitrage
Key role of central banks in financial stability and
macroprudential surveillance
Works in progress on effective tools for the
monitoring of systemic risks
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