In my view, the Covid-19 crisis is a reminder of the importance of a high quality regulatory framework; the measures implemented post GFC, including Basel 3, have proven useful in managing the health crisis. The finalization of Basel 3 structurally improves further the overall framework, and therefore, I do not see any benefits in further delays. In addition, this is paramount to avoid market fragmentation across the globe. Therefore, I am firmly convinced that a consistent implementation across jurisdictions of this last set of Basel 3 is in the interest of all stakeholders. This is indeed particularly relevant for the FRTB; the impact of the Covid-19 crisis vividly reminded us of the criticality to reduce the procyclicality of market risk capital requirement in periods of high volatility. 1.2 The need for a reasonable and fair transposition without significant increase in capital requirements Two important red lines have guided us in the negotiation of the final leg of the Basle 3 agreement: First that its implementation doesn’t hamper the capacity of banks to continue providing dynamic lending to the real French and European economies, including SMEs and the housing market Second, that banks can meet the revised capital requirements without dedicated capital issuance or dividend restrictions. The agreement reached in Basle allows for those redlines not to be crossed. We will see if the Commission proposal confirms that.
When the Riksbank alters the repo rate, there is an effect on total demand and ultimately also inflation through various channels within the economy. These channels are the cost of borrowing, incentives to save and wealth, as well as exchange rate fluctuations that affect imported inflation, exports, imports and capital flows. In addition, there is an effect on inflation expectations. It takes some time for an interest rate change to have an effect through these channels. The monetary policy decisions must therefore be based on an assessment of future inflation. Flexibility thanks to credibility Conducting monetary policy is not the same as flying a familiar, well-tuned aircraft. The repo rate is unfortunately a blunt instrument with regard to steering inflation, even a couple of years ahead. What monetary policy can do is to ensure an inflation rate that is over a number of years in line with the target and to contribute to reducing fluctuations in the real and financial economy. When the inflation target was announced in January 1993, the Riksbank formulated a tolerance interval around the target of ± 1 percentage point. The purpose of this was to explain that it is not within the power of monetary policy to exactly meet the target all of the time. In addition, the tolerance interval provides scope for temporary deviations from the target which may be justified by taking growth and employment into consideration.