Banking starts with banks: initial reflections on recent market stress episodes

Keynote speech by Pablo Hernández de Cos, Chair of the Basel Committee on Banking Supervision and Governor of the Bank of Spain, at the Institute of International Finance Roundtable on the Shifting Risk Landscape, Washington DC, 12 April 2023.

Introduction

Good morning, and thank you for inviting me to speak at this roundtable. 

I should start with a confession. I spent some time debating what to cover in my speech today. The Basel Committee recently published its work programme for 2023–24, which covers a wide range of analytical, supervisory and regulatory initiatives.¹ This includes work on medium-term structural trends affecting the global banking system, including most notably the digitalisation of finance and climate-related financial risks. It also covers important supervisory initiatives on updating the core principles for effective banking supervision, assessing banks' interconnections with non-bank financial intermediation (NBFI) and shoring up banks' outsourcing practices and reliance on third- and fourth-party service providers. Any one of them would have been worthy of a speech in its own right.

But, in the end, I decided to focus my remarks on the recent episodes of banking stress and the implications for the Committee's work. In many ways, this was perhaps the first "real" stress test of the banking system (or at least parts of it) since the Great Financial Crisis; as many have previously observed, the banking system benefited from the huge scale of public support measures during the Covid-19 pandemic.² And, if the pandemic was a stress test, it stemmed from an exogenous shock, not a financial one. So it is important to take a step back and ask what happened, why it happened, and what it all means for banks, regulators and supervisors.

As you may have seen, the Committee recently announced that it is reviewing recent market developments and will take stock of the regulatory and supervisory implications from recent events, with a view to learning lessons.³ This work has already started. The Committee will discuss the outcome of this work in due course. So, in the meantime, I will be speaking today in a strictly personal capacity, offering some preliminary observations and raising some questions for further reflection. I will not prejudge the outcome of the Committee's stocktake, and I shall also refrain from commenting on individual banks or jurisdictions.

• Full speech (8 pages)

¹ BCBS (2022d).
² Hernández de Cos (2022a, 2022b, 2022c).
³ BCBS (2023).