We do not need to implement Basel II formally to introduce or to strengthen the principles behind its three pillars. However, beginning to apply those principles can be an excellent way to lay the foundation for Basel II in the future. For example, supervisors could consider or continue to focus on internal processes and move toward a system of risk-based supervision, to complement and enhance traditional supervision. We can improve our capacity to look beyond the numbers and evaluate the quality and capabilities of a bank’s risk management and measurement. At the same time, supervisors can nurture a “risk management culture” by emphasising that banks are responsible for evaluating their capital needs and for developing a strategy to maintain their capital levels, in line with the principles of Pillar 2. Finally, to improve market discipline along the lines of Pillar 3, some supervisors may wish to begin by ensuring a basic level of disclosure across all banks. They could discuss with banks, investors, and other marketplace participants what information they need to understand a bank’s risk profile and then work to establish relevant reporting requirements. Clearly, we have many diligent preparations to make in the coming months and years as we prepare for Basel II. Later today, Nick LePan will share more detailed perspectives on the challenges ahead.
The narrow monetary aggregate M1 remained the main contributor to broad money growth. The growth of loans to the private sector strengthened further, continuing the upward trend observed since the beginning of 2014. The annual growth rate of loans to non-financial corporations rose to 4.3% in September 2018, from 4.1% in August, while the annual growth rate of loans to households stood at 3.1%, unchanged from the previous month. The euro area bank lending survey for the third quarter of 2018 indicates that loan growth continues to be supported by increasing demand across all loan categories and favorable bank lending conditions for loans to enterprises and loans for house purchase. The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing – in particular for small and medium-sized enterprises – and credit flows across the euro area. To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed that an ample degree of monetary accommodation is still necessary for the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term. In order to reap the full benefits from our monetary policy measures, other policy areas must contribute more decisively to raising the longer-term growth potential and reducing vulnerabilities.