But perhaps not covered in any national media, including here in the UK, as much as one might expect. 4  BIS central bankers’ speeches  •  But there is a deeper question here about the compatibility of domestic and global objectives. In the monetary sphere, it is well known that one cannot combine capital mobility, monetary policy focused on domestic price stability, and fixed exchange rates. Solution in post-Bretton Woods world has been floating exchange rates. This does not mean there are no spillovers. Hence information sharing in Basel meetings etc. •  There is a financial trilemma too. Cannot combine cross-border banking, and an integrated international financial system more generally; financial stability; and national policies focused solely on domestic stability. •  Came home to roost in the crisis: global banks were, as Mervyn King put it, “international in life but national in death”. Financial autarky is not the answer. •  Solution: co-ordination and co-operation on the resolution of global banks. G20 Financial Stability Board has led the way here. Real progress. •  Means foreign countries have a stake in our banks, and vice versa. Means the key policies are unavoidably international, global. As a trading nation we should welcome that. I hope these brief remarks provide the basis for a good discussion. In short, the traditional roles of central banks – for the first time ever reflected in UK legislation – touch every household and business in this country and, in truth, more widely.
Authorities with a mandate in this area must have well-defined roles and responsibilities, including a distinct set of instruments. Current overlaps between instruments should be eliminated, and more flexibility in the macroprudential policy framework should be maintained, so that authorities can implement those measures in a consistent and timely manner, which would require significant changes to Article 458 of the CRR. A more integrated financial market will support the emergence of new types of risk and also require extending the toolkit with new instruments. For the banking sector, this includes complementing the toolkit with borrower-based instruments (such as limits on loan-to-value, or loan-to-income ratios) as well as sectoral buffers and a time-varying leverage ratio add-on so that all aspects of systemic risks can be addressed in the banking union. Finally, the mandatory reciprocity framework needs to be expanded so as to ensure the effective mitigation of crossborder spillover effects and regulatory arbitrage across jurisdictions in the EU. 3/9  BIS central bankers' speeches  The significant progress we have made with our banking union needs to be recognised also from the international regulatory framework perspective. A case in point is the G-SIB 9 framework, which currently penalises cross-border transactions within the banking union by attaching a higher systemic risk score to banks with more transactions of that kind. This goes against the very rationale of the banking union, as it reduces the incentives for cross-border transactions and risk diversification, thus making banks more vulnerable to local shocks.