At the same time, there has to be a global understanding of what regulation means, since regulations could otherwise, given the global interconnectedness of financial markets, be easily leveraged and since fair competition can only be assured when the rules of the game are the same. •  I remain convinced that regulation and supervision must be sensitive to risks. This means that the bank that takes greater risks and poses a greater threat to financial stability must also be subject to stricter rules and/or limitations on its business  2  BIS central bankers’ speeches  activities. If our set of rules was to treat different risk profiles in the same way, then we would subject conservative, low-risk banking business with low yields to the same requirements as high-risk business activities, thereby making the former uneconomical. In my view, that would be creating the wrong incentive. •  We need a shrewd supervisory authority that monitors compliance with the rules and supervises banks in a consistent and tough but fair way. It needs to be shrewd because it must be able to use its discretionary powers correctly when regulating matters and weigh different arguments on a case-by-case basis. In this role, supervision must be able to act across national borders, because that is the only way to ensure that large, internationally active institutions, too, are subject to consistent and comprehensive control.
The SSM allows us to compare and adapt supervision across 19 countries, to identify best practices and to ensure that they are implemented consistently through effective quality assurance. There are now completely new possibilities for comparative and cross-sectoral analysis than were available at the national level. For our tasks, we can use information and insights from banks with very different business models. This enables us to identify risks and undesirable developments more clearly and at an earlier stage, and to take suitable countermeasures. We can also put work on banks’ internal models, which have a significant influence on a bank’s capital requirements, on a new footing. We will use the opportunity, given the improved level of data and insight, to implement strict rules for the approval and ongoing supervision of internal models. Despite this progress, there is still a lot to do in the further development of supervision. The effectiveness and efficiency of supervision is dependent on the legal framework it applies, although this is not the sole determinant. Soft European standards or diverging national rules impair the SSM’s ability to take action and its effectiveness. And this does not just concern  4  BIS central bankers’ speeches  national rules that affect the quality of banks’ equity. The SSM applies 19 different national legal frameworks and not only when, for example, we examine the professional suitability of managers in large, internationally active banks.