Klaas Knot: Pendulums and pitfalls on the road to resolution

Speech by Mr Klaas Knot, President of the Netherlands Bank, at the annual Single Resolution Board (SRB) Conference, Brussels, 29 September 2017.

In his address to the visitors of the annual SRB Conference in Brussels, Klaas Knot touched on three issues:

1) linking resolution to the objectives of the ECB

2) the attractive but false metaphor of the so-called "regulatory pendulum"

3) funding in resolution

As rightly alluded to by previous speakers, a decade has passed since many of us lost our innocence. I certainly did! Ten years ago today I was feverishly working around the clock to design emergency safety nets and restore public confidence. The financial crisis fundamentally challenged how we regard the resilience of financial institutions. It also made clear that apart from stricter supervisory requirements, a solid crisis management framework was necessary. To that effect, The BRRD provided the tools, and the SRM regulation gave a central role to our hosts, the SRB.

I have been a keen supporter of the resolution framework from the outset. As a member of the FSB, I contributed to the development of the GSIB framework and TLAC standard. Significant progress has been made since then, for instance, in establishing the rules and building institutions, as you just heard. But much remains to be done. Making banks resolvable is clearly a journey. The key challenge is to stay the course.

Today, I would like to give you my perspective as a central banker on bank resolution. I will touch on three issues: First, I will explain why making banks resolvable is central to the objectives of the ECB. I will then counter the attractive metaphor of the regulatory pendulum, swinging towards looser regulation. Finally, I will address the elephant in the room called "Fury", or funding in resolution.