Views on improving the integrity of global capital markets
05 July 2017

Systemic Risk Council Leaders Warn Against Rolling Back Financial Reforms

The Belgium Stock Exchange, Brussels, Belgium

Systemic Risk Council (SRC) chair Sir Paul Tucker and SRC senior adviser Jean-Claude Trichet met in Brussels a few months ago to discuss systemic risk and emerging threats to financial stability in the European Union. Both are influential leaders within the global financial community and well-known champions of system reform. Tucker is former deputy governor of the Bank of England, and Trichet is the former president of the European Central Bank.

CFA Institute and CFA Society Belgium hosted the event, titled “Examining the State of Systemic Risk Reform: Where Next for Macroprudential Policy?” (video of full discussion and Q&A). More than 235 people attended, including CFA members, heads of European and international regulatory bodies, and other policymakers and industry stakeholders. Robert Jenkins, FSIP, a member of the CFA Institute Board of Governors, introduced the panelists, and Jan De Wit, CFA, Head of Front Office at the National Bank of Belgium and past-president of CFA Society Belgium, provided closing remarks.

“This is No Time for Complacency”

Jean-Claude Trichet

Jean-Claude Trichet

Banking reform in the aftermath of 2008 was the topic, and both Trichet and Sir Paul came out strongly against lessening financial reforms that were instituted in the wake of the collapse. Both agreed that risks around the world are “crystalizing,” bringing into focus the possibility of another recession.

Trichet noted that mounting public debt has continued to increase in the years following the crisis — itself triggered by excessive debt. During the next downturn, he said financial institutions will likely be more exposed to losses than in the past. There will be less room for maneuvering because there is less “monetary ammunition in the tank.”

A Message to G–20 Countries

Earlier in February, the SRC issued a powerful policy statement that provided recommendations of minimum international standards to maintain a strong, resilient financial system. It was addressed to ministers, governors, chief financial regulators, and legislative committee leaders of the G–20 countries. In the statement, the SRC cautions that now is not the time to relax or retreat from banking reform programs, given the continued buildup of debt and other system stresses, and doing so may lead to another major financial crisis. This becomes particularly important in the face of Brexit and the Trump administration’s intention to repeal aspects of Dodd-Frank.

Other Highlights

Continuing on the theme of risk and reform, the two also discussed stressors in the global community, the need for a real capital markets union, sovereign debt, and the importance of common rules. Ultimately, strong international standards serve the national interest because of the global nature of capital and exposure of one country’s financial system to another.

Sir Paul said, “When you talk about deepening of the political institutions, you need a model of rules — rules that bind on fiscal and budgetary positions of autonomous member states.” He added that “the thing about rules” is the importance of incentives — an incentive to agree to a rule, and an incentive to comply with a rule.

 

Sir Paul Tucker

Sir Paul Tucker

Brexit Nightmare Scenario

After the panel, Sir Paul responded to a question that asked what will happen to the European Union when Article 50 is triggered. He said, “The UK can leave the EU and everywhere else but it can’t leave where it’s situated on planet earth…I think what’s really important is that the European voice is really heard at the top table…that our version of civility is heard. We should believe in the values we have brought to the world.”

 

About the Systemic Risk Council

The Systemic Risk Council is a private sector, non-partisan body of former government officials and financial and legal experts committed to addressing regulatory and structural issues relating to global systemic risk, with a particular focus on the United States and Europe. It was formed in 2012 by CFA Institute and The Pew Charitable Trusts to provide a strong, independent voice for reforms that are necessary to protect the public from financial instability. CFA Institute became the sole supporting organization in 2015. The goal is to help ensure a financial system in which we can all have confidence. Visit www.systemicriskcouncil.org to learn more.

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Photo Credit: ©Getty Images/Cultura Exclusive/Philip Lee Harvey

About the Author(s)
Rhodri Preece, CFA

Rhodri Preece is Head of Industry Research for CFA Institute. He is responsible for building and maintaining the global thought leadership function at CFA Institute, including leading the planning, coordination, and creation of research content across CFA Institute research platforms, including the Financial Analysts Journal, the CFA Institute Research Foundation, and the Future of Finance initiative. Rhodri formerly served as head of capital markets policy EMEA at CFA Institute, where he was responsible for leading capital markets policy activities in the Europe, Middle East, and Africa region, including content development and policy engagement.

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