Christian Noyer: Evolution of the regulation in Europe and in the United States – convergence or divergence? Keynote address by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, to the Paris-Europlace Financial Forum, New York, 18 April 2011. *  *  *  Strengthening financial regulation has been high on the agenda of the G20 since Pittsburgh in October 2008. Much has already been achieved both at the international level especially through the Basel Committee for Banking Supervision but also on national level with the Dodd-Frank Act in the US and the pending regulation for market infrastructures in the European Union. It is fair to say that the evolution of the regulation in Europe and in the United States has not always followed the same path in the past. At a time when our regulations are completely revisited and when many restructurations are taking place in the finance industry, rigorous consistency on both sides of the Atlantic is clearly needed if we want to avoid regulatory arbitrages and uneven level playing field which would be the seeds for inefficiencies and future disappointments. In my remarks today, I will briefly discuss the achievements on reforms of financial regulation. Then I will highlight some existing discrepancies between European and US regulatory frameworks that should be addressed. I. Regarding achievements in financial regulation: What has been completed so far?
With the US rate hike cycle drawing nearer, the window for the region to get prepared for a tightening in financial conditions is getting smaller. It is therefore important for policy makers to contain further build-up of leverage, and to ensure banks will properly manage interest rate and exchange rate risks, and can withstand any potential deterioration in loan quality. It is encouraging to see that policymakers in many economies in the region have taken pre-emptive policy actions to lower credit growth and slow house price inflation. The biggest challenge now is when and how to relax these measures when market conditions reverse. 6. Second, policymakers will need to have sufficient backstop to mitigate systemic risk in the financial system in the event of a disorderly exit of US monetary policy. In this regard, the ASEAN+3 Chiang Mai Initiative Multilateralisation Arrangement, the regional financial safety net, could help to mitigate the risk of financial contagion by providing financial resources to members in the event of short-term liquidity difficulties. BIS central bankers’ speeches  1  7. Third, structural reforms remain the best way to reduce vulnerabilities and achieve sustainable growth over the long-term. We have been moving forward on this front through a deepening of intraregional trade, strengthening private and public-sector balance sheets and improving market infrastructure. But a lot more needs to be done. There is still ample scope to tackle structural impediments to growth and stability such as further capital market development, product and labour market reforms and service-sector reforms.