31.05.2022  Crypto-assets: a financial authority’s view Masters in Finance Closing of the Speakers Series, ESADE Pablo Hernández de Cos Governor  Good afternoon. I am delighted to be here today to address an audience of recent Masters graduates. Not only as recognition of the growing importance of furthering our education in such a changeable world, but also because it affords me the opportunity to talk about cutting-edge themes with those who will play a leading role in the future of our society. Among the many topical issues I could have selected for my address, I believe crypto-assets are the most suitable choice. Among other reasons, because young high-earners who study or work and live in big cities are precisely those who best fit the typical crypto-asset investor profile in Spain.1 Despite being a somewhat misleading term, so-called “virtual currencies” have already been part of our lives for over a decade now. However, only in recent times a series of factors have emerged that seem to be underscoring their ultimate potential to end up playing a significant role in the financial system.
Let me now turn specifically to financial regulation. To the extent that financial regulation contributes to procyclicality and excessive risk-taking, supervisors could design their regulation in a counter-cyclical fashion to reduce procyclical behaviour of financial institutions. Reflecting this thinking, discussion to date on the role of financial regulation to address procyclicality has focused on four areas. The first is to reduce procyclical tendencies of the Basel II capital regulation by aligning capital requirement more with a longer-term perspective of risk. On this, key measures under discussion include: (1) building capital buffers by capital conservation measures; (2) reducing procyclical effects of minimum capital requirement by adopting through-the-cycle risk parameters to achieve a less pro-cyclical capital ratio; (3) promoting forward-looking provision that can cover loan losses that are not yet incurred but expected, with supporting accounting rule and valuation; and (4) using additional capital charge for the large and more complex banks based on indicators of systemic relevance. The second area of focus is the use of macroprudential supervision. The aim is to use prudential measures, when needed, to restrain the build-up of risk either in the overall financial markets or in specific asset class. Examples here include use of loan-to-value ratio on real estate loans and margin requirements for derivatives and securities transactions. Also, a recent idea of using leverage ratio to help take account of the unknown risk beyond those identified by the risk-adjusted capital regulation also falls into this category.