What are capital markets telling us about the banking sector?

Speech by Mr Jaime Caruana, General Manager of the BIS, at the IESE Business School conference on "Challenges for the future of banking: regulation, governance and stability", London, 17 November 2016.

Many banks already hold better-quality capital that significantly exceeds the new regulatory requirements. Yet the sector is still some way from recovering trust. Market pressures - not just regulations - have prompted banks to be more conservative with their balance sheets. Low price-to-book ratios of banks, a persistently wide cross-currency basis and continued deleveraging are signs that creditors and investors are now much more ready to sanction banks that are deemed not well capitalised. Therefore, dialling back the post-crisis regulatory reforms is not a convincing strategy to help banks overcome these pressures. Rather, banks can help themselves regain market participants' trust - and better serve the real economy - by cleaning up balance sheets and strengthening capital.