Ana Botín: Banking regulations need to be reset

The writer is the chairman of Santander

As the New Year begins and we seek to rebuild the economy, we need to rethink how we regulate finance. This is because the challenges posed by the Covid-19 pandemic are different from those posed by the 2008 financial crisis.

At that time, authorities drew two conclusions from the fact that banks were a big part of the problem. To reduce the risk to financial stability, banks need better capital and to encourage competition with new entrants, including high-tech companies, to reduce the economy’s reliance on large banks.

These goals have almost been achieved. Banks are certainly much more well-capitalized today and their balance sheets are healthier. Big Tech and other new providers are making significant inroads into financial services. Currently, the regulatory system needs another reset to address three key challenges.

The first is clearly a recovery, which will accelerate as banks lend out more businesses. This means that they need to be able to deploy more of the capital they have built up. You also need to be able to attract investors if you want to expand your capital.

However, at this time, most banks are not able to get the most out of their balance sheets. This is primarily due to how investors view capital regulation. This includes a “buffer” of capital that banks need to build since the financial crisis. The purpose was simple. Banks were able to increase their capital, build cushions in good times and lower them to absorb losses in bad times. During the coronavirus crisis, regulators allowed banks to use these buffers. But investors are worried about what happens when the economy begins to recover and banks need to rebuild their buffers. This will take time as low interest rates and the downturn will push down banks’ profits. This concern is putting pressure on bankers to increase their capital now, rather than using it to fund recovery.

Regulators, including Randal Quarles, chair of the Global Financial Stability Board, are openly discussing the issue. They can’t deal with it right away. In the short term, authorities need to stabilize capital requirements. Eliminate uncertainties regarding the Basel III regulatory framework adopted after the financial crisis. Simplify and adjust the way banks calculate capital and liquidity to absorb losses.

A long-term rethinking revisits how banks calculate the risk weights of their assets with the aim of considering the optimal use of capital buffers and the optimal levels of capital requirements and releasing capital to support new lending. You need to consider.

The second challenge is to reset the financial regulatory system to support and facilitate the green transition. Global action is required to agree to the “green” classification and ensure that all large publicly traded companies comply with the recommendations of the Climate-related Financial Disclosure Task Force. The market needs new incentives to support the transition to a low carbon economy. Regulators need to consider ways to reduce the cost of capital of banks that fund green activities.

The third challenge is the digital revolution. Regulations now favor tech companies that mediate financial services rather than banks. This is especially true of the data rules that enhance payments. Large technology companies are becoming a lending platform without complying with most banking regulations. Their role is growing, albeit relatively small overall. Last year, FinTech and Big Tech credits reached $ 795 billion worldwide, according to the Bank for International Settlements. Pandemics only settle digital players.

Instead of giving banks an advantage, they need to level the competition to remove the advantages that technology companies have had over the last decade. EU regulations require financial companies to allow technology companies access to customer-generated data if the customer agrees. This requirement should apply to data held by all sectors, including technology companies. The stadium should not be tilted for anyone. New proposals from the European Commission require urgent action.

I’m not saying that all regulations that came into force after 2008 need to be lifted. But the rules should evolve as the world, competition and risk change. Stop adjusting with the rearview mirror. Politicians, regulators and banks need to find ways to improve their regulatory structure to better service for individual customers and businesses, while helping lenders deliver results to shareholders and address these three challenges. .. A reset is required.

Ana Botín: Banking regulations need to be reset

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