Mark Carney: Regulatory work underway and lessons learned Remarks by Mr Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, at the 29th Annual G30 International Banking Seminar, Washington DC, 12 October 2014. *  *  *  Six years ago when the financial crisis was in full force, the G7 met here in Washington. We backstopped our entire financial systems. The G20 then committed to its fundamental reform. The first objective was to fix the deep and varied fault lines that caused the crisis. We are now in prospect of substantially completing that job at the Brisbane Summit. Core financial institutions are more resilient. Effective bank capital requirements have increased seven-fold. Major banks are on track to meet these requirements five years in advance. And for the first time liquidity standards have been established. There have been fundamental changes to banks’ relative incentives to engage in proprietary trading, market-making and lending, as well as restrictions on contingent exposures to off balance sheet vehicles, such as SIVs. Shadow banking is being transformed into resilient market-based financing. Minimum margin requirements have just been agreed for the repo market, and a variety of shadow banking institutions, including money market funds, have been reformed. Derivative markets are safer. Trading is now simpler and more transparent. Central clearing and trade reporting requirements are coming on-stream, backed up in over half of FSB jurisdictions by capital requirements and, from December 2015, margining requirements. Half of interest rates swap transactions are now centrally cleared.
But as we move to the next phase of post-crisis regulation, many commentators find it tempting to succumb to world-weary arguments. That any reform will be arbitraged That any insurance will promote risk taking That there is a trade-off between stability and growth  4  BIS central bankers’ speeches  And that there will always be financial crises. We were right to reject such fatalism when we embarked on reform and we are right to reject it now. While all recognise that future crises cannot be ruled out, the steps taken in the past six years have certainly reduced the likely frequency and severity of such crises. Where banking systems have raised capital and restored trust in their creditworthiness, access to credit has returned. This central lesson from the US and the UK recoveries could not be clearer. Publicly provided insurance is being removed from the system as the Too Big to Fail problem is addressed and the public subsidy for globally systemic banks is eliminated. Market forces are being restored. The system is more transparent. It is clear who bears risk. And the scope for arbitraging new regulation has been reduced through a global approach to reform that has established common standards and encompassed shadow banking. In short, any serious look at the experience of post-crisis reform shows that reform and regulation support – not damage – long-term prosperity. As I said in Washington three years ago: in no other aspect of human endeavour do men and women not strive to learn and improve.