It generates new types of risk, which constitute challenges to central banks and supervisors of financial markets. Globalization of financial markets and the related rapid growth of turnover in credit derivatives, such as CDOs or default swaps, force a focus on understanding, what types of risk are generated in particular market segments. Such risks should be continuously analysed by central banks and supervisory authorities. It may happen in the future that the social groups which incur losses in the process of globalization will force the decision-makers to take up protectionist actions, which may contribute to significant lowering of the future economic growth, through limiting the benefits from international trade. Therefore, economic policy, especially in the countries with a large share in the global product, should be  44  Schoenmaker D., Oosterioo S. “Cross-Border Issues in European Financial Supervision”, in: Mayes D., Wood G. (editors) “The Structure of Financial Regulation”, London 2005. 45  Directive 2002/87/EC of the European Parliament and of the Council of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, and Directives 98/78/EC and 2000/12/EC of the European Parliament and of the Council. 46  The Act on supplementary supervision over credit institutions, insurance companies and investment companies in a financial conglomerate of 15 April, 2005, (the Journal of Laws No. 83/2005, item 719).
The cost of this stigma increases as we move from management buffers, to releasable regulatory buffers, to usable regulatory buffers with no consequences, and finally to regulatory buffers with consequences – and use is 11 See Bank of England’s May 2020 interim Financial Stability Report (chart B.14). 12 And, in our liquidity frameworks, banks’ liquid asset buffer requirements are intended to be usable in stress and do not  trigger any explicit regulatory consequences if dipped into. 7  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  7  often disclosed. Moreover, firms might believe that ratings agencies or supervisors would take a negative view of a firm which dipped into its regulatory buffer. All of these factors can limit practical buffer usability. Another problem is that, in stress, firms may be particularly cautious and prefer to conserve capital or liquidity to meet uncertain future needs. There may be a tension between conserving capital to provide additional individual bank resilience, and supporting the economy – especially if there is uncertainty about the timeline for the restoration of buffer levels after a recovery – even though supporting the economy would provide a better outcome for banks as illustrated a moment ago. The policy question and the opportunity to explore it If a regulatory buffer is not practically usable in the sense that banks do not want to dip into it, then it has little value in helping firms to absorb shocks in ways that keep lending going in bad times.