Claudia Buch: Global rifts and financial shifts - supervising banks in an era of geopolitical instability

Keynote speech by Prof Claudia Buch, Chair of the Supervisory Board of the European Central Bank, at the 8th European Systemic Risk Board (ESRB) annual conference "New Frontiers in Macroprudential Policy", Frankfurt am Main, 26 September 2024.

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

When the ESRB first met in 2011, the global financial system was still recovering from the financial crisis. The dark clouds of the European sovereign debt crisis were on the horizon, but the full force of the storm had yet to break.

This was a time of institution building in Europe, of designing new microprudential and macroprudential instruments, in a spirit of confidence that global cooperation works. The G20 Pittsburgh Summit of 2009 was emblematic of this cooperative spirit, as policymakers decided on a comprehensive reform package to make the global financial system safer.

Today, the world looks very different.

On a positive note, the reforms have worked. Banks are better capitalised and have higher liquidity buffers. We have at least a decade of macroprudential policymaking experience. In Europe, we have significantly reformed supervision through the Single Supervisory Mechanism (SSM). Banks across Europe are supervised according to the same standards, their performance can be benchmarked against that of other banks, and non-performing loans have declined considerably. A new resolution framework makes us better prepared for potential bank failures – although further progress is needed here.

Yet the foundations of the post-war international institutional order and global cooperation are becoming shakier. The rise of protectionist policies has eroded the clear commitment to multilateralism, leading to weakened global trade agreements and cooperation frameworks. Heightened geopolitical risk is unlikely to dissipate over the nearer-term horizon. We need to prepare for a prolonged period of sustained geopolitical tensions, marked by high uncertainty and increased volatility.