Current efforts to enhance global financial supervision

Remarks by Mr Stephen G Cecchetti, Economic Adviser and Head of Monetary and Economic Department of the BIS, prepared for the Federal Reserve Bank of San Francisco Asia Banking and Finance Conference, 7-8 June 2010.

Abstract

The recent financial crisis highlighted the costs of international financial integration. Problems spread rapidly across borders, and some banks had to scramble to fund large open foreign currency positions. A strengthened regulatory framework is required if the future benefits of global financial integration are to outweigh the costs. Absent a global supranational authority, this framework is likely to be formulated and agreed by national authorities, with the appropriate flexibility to allow local situations to be addressed. While substantial progress has been made in strengthening regulation of institutions, notably through enhanced capital and liquidity buffers, the framework should also tackle instruments, probably via some form of product registration, and infrastructure (eg via moves to establish central counterparties). One area not yet adequately addressed is the application of regulatory standards to institutions and markets outside the banking sector. The costs of an improved regulatory framework are likely to be modest, especially when compared to those of financial instability.