•  Use of microprudential tools for macroprudential purposes: The Committee will oversee preparations for the countercyclical buffer, as well as exchange information on the wider range of microprudential tools that have been used for macroprudential purposes (eg sectoral adjustments to risk weights, stress testing requirements, loanto-value limits or varying margin requirements). Concluding remarks Since the financial crisis, the Basel Committee has accomplished a great deal. But we still have work to do to complete the overhaul of the regulatory framework and fully factor in all of the lessons learned. We also need to see whether we have the balance right when it comes to simplicity and risk sensitivity. That work is going to keep the Committee busy for at least the next two years. But that is far from the end of it, because, as I have noted a number of times today, our policy work will not generate its full benefits if not implemented in a full, timely and consistent manner. So our implementation monitoring work is equally important. And then even when  6  BIS central bankers’ speeches  the new standards are implemented, we will need effective supervisors to ensure that they are adhered to. This is an area where the Committee has the potential to do much more, particularly once the policy pipeline begins to slow. In other words, the Basel Committee will continue to provide you with much to talk about – at this meeting and those in the future! BIS central bankers’ speeches  7
Third, technology has advanced enormously in terms of both the capacity as well as sophistication. Countries have benefited immensely from these developments and, as a result, wide choices are available to savers & investors, borrowers & lenders together with greater flexibility & efficiency in the allocation of capital. Many institutions have sprung up in both money and capital markets. Similarly, the financial world has become more complicated with closer interconnectedness within and between individual firms, institutions and markets. In the meantime, the regulatory authorities have begun to focus on the achievement of specific objectives and found that they have to react to action by the financial markets by putting breaks to halt the rapid expansion, which would otherwise threaten the stability objectives. So, they brought in financial regulations to deal with the situations. Unabated by the tightening of financial regulation, financial markets continued to grow rapidly and ended up in crises and the world has learnt many lessons from financial crises. The outcome of the Mexican crisis in 1994, the Russian crisis from 1992 to 1995 and the Asian crisis from 1997 to 1998 was the further tightening of financial regulations and introduction of new ones. They were more reactionary and intrusive after the Enron and World Com failures in the USA. The Sarbanes Oxley regulations, which are considered somewhat draconian have come to stay, but may be with modifications.