To sum up so far: yes, there has been a strong regulatory reaction to the crisis, but as I see it, this is appropriate, given –  the pre-crisis regulatory framework,  –  the costs crises give rise to, and  –  the efforts that the Basel Committee has made to mitigate risks of unintended consequences,  The problem is that myopic observers tend to forget these aspects. Are we there yet? Remaining challenges? I would now like to change perspective slightly and ask, are we there yet? Have our efforts done the trick, or are there still challenges to be tackled ? Well, from a Basel Committee perspective I am pleased to be able to say that the Basel III framework is now agreed – in principle. This is a major achievement that all participating parties should be proud of. If I widen the scope, beyond the Basel III framework, and look at other parts of the reform agenda, it is obvious that the work on ending the “too big to fail” problem has been difficult, and that some work still remains to be done. However, the reason we have not yet reached our goal is not lack of effort, but simply that the resolution of very large, cross-border banks is not easy. The main remaining issue here concerns how to ensure that global systemically important banks have sufficient capacity to absorb losses in resolution, without having to ask tax-payers to foot the bill.
After an assessment has been thoroughly debated in the Committee, the final assessment becomes public.7 The assessments, and the publication of the results, have proved to be a powerful tool. To date, more than 200 adjustments have been made by member jurisdictions in response to findings raised by the assessment teams. In addition, the process has also generated a positive feedback loop, meaning that the lessons learnt from assessments are used to improve and clarify the standards. So far, the assessments have concentrated on the capital framework, but from 2015 onwards the scope of this work will widen further to include the implementation of the liquidity coverage ratio and the SIB-requirements. However, for the new, stricter requirements to bring the benefits we are aiming for, it is important that they be properly reflected, not only in national legislation, but also at the level of individual banks. To use an analogy of car safety, if we are now providing banks with air bags, in the form of higher capital requirements, it is important that those air bags are actually activated in case of an accident. For this to happen, the sensors need to be functioning and well-calibrated. For banks, this means that risk weights need to signal appropriately the risks that individual banks actually face. This aspect is captured in the Committee’s thematic assessments. To put it simply, in these assessments we examined whether the banks’ risk-weighted assets could be trusted.