Each supervisor must therefore take a view about the soundness of the entity in its jurisdiction, even where this hinges on controls located elsewhere. How have regulators responded to these trends? In summary, they have increasingly sought ways of increasing co-operation amongst themselves, including agreeing their respective responsibilities and setting up arrangements for information sharing. In the banking sector, at least, they have also supplemented solo supervision of individual entities with consolidated supervision of groups as a whole. When the Basle Committee on Banking Supervision was established by the central bank governors of the G10 countries at the end of 1974, its initial focus was to define the role and responsibilities of home and host supervisors of internationally active banks. These were set out in the 1975 Concordat which established how supervisory responsibility for banks’ foreign branches and subsidiaries should be shared between host and parent supervisors, and which has been updated on a number of occasions since. Securities supervisors too have a long tradition of international co-operation, including arrangements for information sharing and mutual assistance in enforcement, with IOSCO playing a key role in facilitating such co-operation internationally. There is also a long history of discussion between Basle and IOSCO. Individual supervisors in both the banking and securities industries have chosen to reinforce co-operation arrangements with formal bilateral agreements with their overseas counterparts. Partly as a consequence, there have been an increasing number of informal meetings between line supervisors with operational responsibility for different parts of financial groups.
We have to continue to defend the rules that have made the financial system less crisis-prone. How well prepared are we then? The next crisis might not necessarily start in the financial system. It might come from another quarter instead. At the ECB, we are currently looking closely at cybersecurity, for example. We don’t want the next crisis to be triggered by a hacker. Continued investment is needed to protect the financial system from cyberattacks. What is the ECB doing in this respect? For example, we have set up a Euro Cyber Resilience Board, which is a forum for regular discussion and cooperation between central bankers, supervisors and providers of critical financial infrastructures. We have designed a European framework for red-team testing in the financial sector, Tiber-EU. And cybersecurity is also becoming more important for ECB Banking Supervision. Credit institutions have to report any attacks on their systems. Those are just a few examples. The next few years will bring many more initiatives on this front, also at the G7 and G20 levels. After all, cyber threats don’t stop at borders. Bitcoin and the like are giving rise to new crypto currencies and new risks. Do we need regulation in this area? I prefer to speak of crypto assets rather than currencies – if anything, their volatility clearly disqualifies them as currencies. The priority is to prevent them from being used to launder money and finance terrorism.