6/8  BIS central bankers' speeches  • Digital bonds have many advantages: - they can be issued in smaller denominations; - primary issuance settlement times can be shortened; and - coupon and redemption payments can be automated. Decentralised Finance Web 3.0 can potentially disrupt the world of Finance. This is the phenomenon of decentralised finance or DeFi, where end-users perform financial transactions directly with one another using smart contracts, without the need for financial intermediaries. It is a fundamentally different approach to financial infrastructure, compared to the centralised systems of today. DeFi is already a growing reality, albeit nascent. Crypto tokens are bought and sold on decentralised exchanges, without the need for intermediaries to clear and record the trade. Another example is borrowing and lending, where anyone can lend and borrow directly to others via a liquidity pool managed by a smart contract. DeFi has the potential to yield significant economic and social benefits. By replacing intermediaries and central counterparties, these open crypto networks can potentially reduce the cost of finance. When firms of all sizes, and even individuals, can directly access financial infrastructure, it could mean more competition and inclusion. But DeFi is not without risks and vulnerabilities. These open crypto networks are not at the stage where they can meet the high standards of governance, security, and resilience that are required of critical infrastructure by central banks and regulators.
In the United States, these rules were not applicable to SVB, as certain exemptions, introduced in 2019 under the proportionality principle, apply to banks that are considered to be less important, this concept being understood in a broad sense since it includes banks with a balance sheet total of up to USD 250 billion. - The post mortem analyses carried out and published by the FED suggest that, had SVB been subject to these rules, it would not have complied with the short-term liquidity ratio as defined by the Basel Committee. Moreover, SVB's heavy reliance on tech companies' deposits should have alerted its supervisor if the additional monitoring tools required by international standards had been put in place. The same FED analyses estimate that SVB's interest rate risk sensitivity was around 35% before the crisis, well above the 15% alert threshold set out in the international rules and supposed to trigger supervisory action. - Monitoring compliance with regulations calls for strict, intrusive and reactive supervision, which, according to the FED, was not the case. Let me reassure you on one point: the European situation is radically different. The Basel Committee's rules are applied in Europe in their entirety and to all banks. By the way, I would like to add that Europe is in the process of finalising the transposition into European law of the latest reinforcements of the Basel III agreements, ahead of the other major jurisdictions.