On the financial sector, beyond the European Union’s borders, and with all our partners, we have to strive to maintain the collective rules of the game that we have put in place since the G20 summit of London in 2009. Nine years later, some actors may be tempted to have short memories and forget the lessons of the crisis. But diluting financial regulation would pave the way for the next financial crisis. So we must now be firmly committed to the “full, timely and consistent implementation” of Basel III, as successfully agreed last December and stated in the last G20’s Buenos Aires communiqué. Neither the United States today, nor the United Kingdom tomorrow, should take the path of unilateral deregulation, and we welcome their commitment. Evaluation and simplifications are obviously possible, under the common FSB umbrella: but regulatory competition would be nothing less than a lose-lose scenario with disastrous consequences. However, we are not done with financial regulation yet. We still have to finalise ongoing initiatives, especially on shadow banking. Indeed, the regulatory priority is no longer the solvency of banks, but the liquidity of non-banks: we stressed these financial stability risks in our Washington meetings last week. Tomorrow, we at the Banque de France will publish the 2018 Financial Stability Review that is focused on fast-growing market-based finance. I stress that we have to better monitor it, test it – through liquidity stress-tests –, and regulate it when necessary.
And we face a number of important challenges in making sure our system is as strong as it can to be. But the substantial competition from a diverse set of financial institutions, including a strong presence by foreign financial institutions, is an integral part of what makes our financial system work well. Our system would not be as efficient or as innovative, and our financial institutions would not be as strong, if we were less open or less committed to giving all institutions similar national treatment and equality of opportunity. I thought I would give you a brief overview of the some of the key challenges we face as supervisors and those that confront the risk management community. The fundamentals of the present U.S. expansion seem relatively strong, with confidence in its sustainability increasing. As the balance of risks to the outlook have evolved, and the financial markets have built in expectations of a move to less accommodative financial conditions, this is a good time to assess how well the U.S. financial system is positioned to deal with this transition, and to withstand the effects of future stress, if that were to materialize. From our perspective, the U.S. financial system is in reasonably strong shape. Risk adjusted capital ratios are strong, and earnings have been robust. Non-performing loan ratios are very low - at about one percent on average across the banking industry. The financial markets are pricing risk in exposure to financial institutions at what are still relatively low levels.