Introductory remarks: 22nd International Conference of Banking Supervisors

Introductory remarks by Neil Esho, Secretary General of the Basel Committee on Banking Supervision, at the 22nd International Conference of Banking Supervisors (virtual), 29 November 2022.

BCBS speech  | 
29 November 2022

Hello everyone, my name is Neil Esho – I am the Secretary General of the Basel Committee on Banking Supervision. I am very pleased to welcome you all to the 22nd International Conference of Banking Supervisors (ICBS). This is the second ICBS to be held virtually.

This event is an important part of the Basel Committee's outreach. It's where we gather supervisors from around the world every other year to share information and exchange ideas.

We have around 450 participants registered from about 120 authorities from 90 different countries around the world so this will be one of our largest and most global conferences to date. In a first for the Committee, we are also livestreaming today's session to the public and so welcome all those who may be participating in the ICBS for the first time.

This year's ICBS will be held over three consecutive days. It will focus on financial technology and its implications for banks and banking supervision.

We have a great line-up of speakers for this year's events, some familiar faces, current and former Basel Committee members, joined by experts in the field of financial technology. We hope that the discussions will help to collectively shape our understanding of financial technology and its implications for banks and banking supervision.

As you know, the Basel Committee has spent considerable time over the past few years analysing the banking, regulatory and supervisory implications of digitalisation and financial technology. And, no doubt, this will be an area of continued focus over the coming years. In the area of regulation, the Committee's work to develop a prudential treatment for bank exposures to cryptoassets is most prominent.

But there is also a lot of supervisory work going on related to a better understanding of the risks and opportunities confronting banks and supervisors as a result of advances in digitalisation and financial technology. To name but a few areas, this includes work on data governance; use of artificial intelligence/machine learning (AI/ML); reliance on third parties; increased cyber risk; operational risk and resilience; the rise of new non-traditional competitors – large and small – bank and non-bank; and also the way supervisors do their job.

I am sure we will have an opportunity to get into the details of some of these topics through the course of the conference. However, in the few minutes that I have now, I want to raise three general points which to some extent have shaped our thinking – or at least my thinking on some of the issues.

The first general point I would like to make is that new technologies have forced us to rethink what is unique about traditional finance – and what are the essential elements that make it work. The creation of unbacked cryptoassets and so-called stablecoins had many of us going back to our first courses on money and banking to refresh our memories of what money is. That process certainly helped many people quickly reach the conclusion that cryptoassets such as Bitcoin are not good substitutes for fiat currencies.1 Similarly, the advent of stablecoins led us to revisit the definition of what is a deposit, a security, a commodity, and more fundamentally – the question of what is a bank2 I think this is an inherently healthy process to go through. It helps to identify the value added of technological innovation. Is the benefit cheaper, faster, more convenient versions of what already exists, or is it fundamentally transformative?

My second general observation relates to being able to distinguish clearly between cases where technology is masking traditional risks (and perhaps also creating new risks), rather than mitigating risks. Putting traditional economic and financial risks in a technology wrapper doesn't address the fundamental risks – it may only mask them. But masking risks makes things worse. It is better if they are transparent and we can address them head-on. One of the challenges for supervisors is being able to filter through the noise and black-box technologies, so as to be able to make informed decisions about what technologies and innovations can be trusted.3

That brings me to my third general point – using cryptoassets as an example. Should regulation insulate or integrate the banking sector from developments in cryptoassets? In some ways the question is misleading, as there need not be a binary "yes" or "no" answer. Indeed, the debate has evolved from being a simple choice between insulating the regulated banking system from the crypto world or integrating it. For many people, doing both is the answer. Insulate against some elements but integrate where the benefits of innovation are clear and the risks are measurable and manageable. Moreover, from a financial system-wide perspective, rather than an individual bank perspective, integration is to some extent inevitable.

The difficulty of course is clearly identifying the costs and benefits of innovation and finding the right degree of integration. Moreover, there is more than one way to integrate cryptoassets with the regulated banking sector – one way is to bring such activities within the regulatory perimeter – the other approach is through the calibration of risk-based capital and liquidity standards that affect the degree of integration or insulation. Both approaches (defining the regulatory perimeter and setting risk-based capital regulations) will most likely need to be used in practice – unless there is a system-wide ban on such activities.

While certain innovations may have great promise, in many cases it remains prudent to take an approach which largely "insulates" the regulated banking system against an asset class that has both a high degree of volatility and immaturity. That approach has certainly served us well to date.

While my comments have focused more on the risks (or potential downsides) of recent innovations, there is no doubting their ingenuity. The pace of innovation has been rapid and certain innovations could ultimately prove to be transformative for the financial sector and beneficial to consumers of banking products. We have already seen benefits through greater financial inclusion. That is something we all welcome and should try to support.

With those brief reflections let me turn back to the conference programme.

We will start with a keynote speech by the Chair of the Basel Committee and Governor of the Bank of Spain, Pablo Hernández de Cos, before moving to our first panel discussion which will focus on how new technologies will shape the future of banking and finance, and consequently banking supervision.

Day two will include three different time zone panel discussions starting in the Asia-Pacific, followed by Europe, the Middle East and Africa, and concluding with the Americas. Each panel will discuss a different technology-related theme. All ICBS participants are invited to join each discussion. However, if the timing doesn't allow your participation, summaries will be presented on day three.

Day three will include summaries of the prior days' discussions, and a panel discussion comprising senior supervisors.

With that, let me hand over to Pablo Hernández de Cos for his keynote speech. 

1 See A Carstens, "Digital currencies and the soul of money", 18 January 2022. 

2 See D Portilla and W Giles, Harvard Law School Forum in Corporate Governance, 24 October2021.

3 See Pablo Hernández de Cos, "New digital technologies and the financial system – fintech, crypto and CBDCs", 9 September 2022.