Simon Potter: New York Fed - strengthening relations with African central banks Remarks by Mr Simon M Potter, Executive Vice President of the Markets Group of the Federal Reserve Bank of New York, to the Assembly of Governors of the Association of African Central Banks, South African Reserve Bank, Pretoria, 16 August 2017. * * * Mr. Chairman, Mr. Vice-Chairman, and honorable governors and heads of delegation, I appreciate this opportunity for me and my colleagues from the Federal Reserve Bank of New York to speak before the Assembly of Governors of the Association of African Central Banks (AACB). Since its establishment in 1963, the AACB has played a vital role in fostering cooperation among central banks in Africa, and between central banks inside and outside of Africa. Through my participation in the Symposium yesterday, I got a sense of the challenges and purpose that drives your agenda in this diverse and dynamic region. The AACB is an important forum for exchanging views within the region and with international partners on these shared challenges and opportunities. My colleagues and I have joined your meetings to seek enhanced dialogue with each of your institutions to strengthen our relationships and channels of communication. We view this engagement as an initial step in our long-term commitment to strengthen our ties with African central banks, and we are pleased to have already met bilaterally with many of you.
The issue is clear, the perfect solution less obvious. At the moment, regulators are talking about dynamic provisioning or capital requirements conditional on the cycle phase. The key idea is that regulators may want to be more lenient in bad times so that individual institutions have more breathing room. If this is the case, the logical consequence is that the overall requirements (e.g. capital adequacy rules) should be tougher in good times. Of course Jean de la Fontaine would argue that this is simply good management and that regulation should be superfluous! Thirdly, it is important to realise that there is no perfect solution and no perfect design. This means that we need to be pragmatic and attack the problem from various angles. Some of the new regulation proposals are elegant and attractive because they go straight to the heart of the problem (convertible debt or contingent capital), others are less pretty (e.g. size requirements), but we should accept this state of affairs until we have a clearer intellectual picture of this major issue. A final note on the issue of remuneration. There may or may not be some truth to the idea (not very popular at the moment) that the financial sector is a high contributor to national value creation, and that this explains the high level of remuneration in that sector. But bankers have some convincing to do and doing so requires being honest about the source of income: is it truly high productivity or is it leverage?