Global consensus around the importance of strong financial regulations is “at risk of slipping” against a backdrop of increasing political upheaval and “waning appetite globally” for internationally agreed-upon rules to be finalised and applied, officials from the Central Bank of Ireland have warned.
Speaking at two separate events on Wednesday, Central Bank governor Gabriel Makhlouf and deputy governor Vasileios Madouros stressed the importance of ensuring that financial sector reforms already in the European Union (EU) pipeline, including the so-called Basel III agreement, are implemented.
Mr Makhlouf delivered the keynote address at the Financial Services Ireland annual dinner in Dublin’s Radisson Royal Blu Hotel, where he told attendees that deregulation was not the answer to all of Europe’s problems.
“You won’t be surprised to hear from me that if a trustworthy and resilient financial sector is in all our interests, then calling for lighter regulation or for lower standards or indeed howling at the moon of no regulation at all is in no one’s interests,” he said.
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Mr Makhlouf said he recognised the importance of competitiveness. “In fact I believe it is imperative we in Europe focus on improving productivity in order to deliver better living standards for our citizens.” However, he said: “I humbly suggest that financial deregulation is not the answer.”
He said “lighter-touch financial regulation” led to the 2008 financial crisis, “one of the most growth-destructive events of the last century”, from which many current global challenges, including “the rise of populism and geopolitical fragmentation”, may be traced.
The Central Bank governor said the consensus that built up in the aftermath of the crash – that trust in the financial system and its “resilience” are in the wider economy’s interest – is “at risk of slipping”.
Meanwhile, Mr Madouros, deputy governor for monetary and financial stability, said “it is critical” Ireland advocated for the EU to implement globally agreed reforms, including Basle III, an ambitious overhaul of bank regulation agreed by supervisors around the world in the wake of the 2008 financial crisis.
Application of the reforms has been delayed amid intense banking sector pressure to water down the rules. European lenders are expected to redouble their lobbying efforts if US counterparts move to further dilute, or even scrap, the agreement following Donald Trump’s victory in the US presidential election.
Speaking at the Federation of International Banks Ireland annual conference in the College Green Hotel in Dublin, Mr Madouros said it was particularly important for Ireland to advocate for the implementation of such agreements at EU level amid “waning appetite globally” for their application.
“History shows that there can be political-economy-driven cycles in financial regulation,” he said. “And, globally, we now seem to be at an inflection point in that cycle.
“It is in everyone’s interest that these pro-cyclical patterns do not re-emerge.”
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