Claudia Buch: Rethinking the prudential regulation of banks

Panel remarks by Prof Claudia Buch, Vice-President of the Deutsche Bundesbank, at the 7th Annual Macroprudential Conference jointly organised by Sveriges Riksbank, De Nederlandsche Bank and the Deutsche Bundesbank, Stockholm, 31 August 2023.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Check against delivery.

Many thanks to the Riksbank for organising this year's Macroprudential Conference and for launching this series of conferences back in 2015. By the time the Bundesbank joined as a co-organiser in 2018, this event had already established itself as a forum for high-level exchange between policymakers, the private sector, and academia. 

The recent episodes of bank stress in the United States and Switzerland bear testimony to the importance of this exchange. They revealed the potentially destructive forces of poor risk management at the bank level coinciding with stress at the macroeconomic level. The stressed banks had weak internal control mechanisms, poor governance, and preexisting conditions. Moreover, supervisors could have taken more forceful action and escalated critical findings more rapidly. Higher interest rates and heightened macrofinancial risks acted as significant amplifiers. Financial stability was at risk, thus triggering forceful interventions by fiscal and monetary authorities.

Looking ahead, the lessons that I believe we should learn from these episodes are that maintaining a resilient financial system requires -

• responding to changes in the external environment in which banks operate – changes in terms of both macroeconomic stability and the nature of competition;
• cooperating closely in macro- and micro-prudential supervision in a forward-looking and preventive manner, and;
• fully implementing the financial sector reforms that have been agreed upon while making targeted adjustments based on sound impact assessments and in an internationally coordinated manner.