Back to the (macroprudential) future: Reflections and questions on macroprudential policy

Keynote speech by Pablo Hernández de Cos, Chair of the Basel Committee on Banking Supervision and Governor of the Bank of Spain, at the HKMA-BIS joint conference on "Future-proof supervision for an innovative banking world", Hong Kong SAR, 24 March 2023.

BCBS speech  | 
24 March 2023


Good morning, and thank you for inviting me to speak at this joint HKMA-BIS joint conference celebrating the HKMA's 30th anniversary.

As the Chair of the Basel Committee, I should mention two more anniversaries that are worth commemorating today. First, the Committee has met in person in Hong Kong over the last couple of days. It has been 10 years since the Committee last met in Hong Kong. I speak on behalf of all Committee members in saying that it is a pleasure to be back here, and I thank the HKMA for its hospitality this week.

Second, it has been 14 years since the HKMA joined the Committee as a member. Since 2009, the HKMA has always been a highly valued member, not least for its long-standing commitment to cross-border cooperation and its constructive contributions, including chairing some of the key Committee groups. These contributions have been critical in supporting the work of the Committee and in seeing through our major post-Great Financial Crisis (GFC) regulatory and supervisory reforms. The Committee has benefited in many ways from the HKMA's perspectives and experiences across a wide range of issues during this period, and am sure it will continue to do so in the future.

But let me come back to the 30th anniversary milestone and revisit the work of the Committee in the year of the HKMA's establishment. In 1993, the Basel Committee had only recently finalised the Basel I framework, and was issuing consultation papers on the prudential treatment for capitalising against market risk and measuring interest rate risk.1 In some respects, certain elements of these consultations sowed the seeds for the development of the Basel II framework later in the 1990s.

Yet despite the passing of 30 years, some of the Committee's supervisory concerns in 1993 sound familiar. Going back to the consultation papers issued at that time, the Committee noted that market risks to banks were growing as a result of "the rapid development of financial markets".2 It went on to stress that interest rate risk is "a significant risk which banks and their supervisors need to monitor carefully", and that "a change in interest rates might adversely affect a bank's financial condition through its effect on all interest-related assets, liabilities and off-balance-sheet items".3 Clearly, these messages continue to hold today, as we have seen from recent events.

Recent events have further highlighted the importance of a resilient global banking system underpinned by effective bank governance and risk management practices, robust regulatory standards, and strong supervision supported by proactive cross-border cooperation. Since the Great Financial Crisis, the Basel III reforms have helped the global banking system absorb different shocks and continue to lend to creditworthy households and businesses

The risks of high inflation, lower growth and geopolitical tensions are posing risk management challenges to banks. Years of unprecedentedly low interest rates underpinned the build-up of leverage across household and corporate sectors. As central banks raise interest rates to combat inflation, borrowers are now facing sharply rising debt service burdens. A broad-based repricing in asset markets could also expose banks to additional risks and new risk management challenges.

Banks and supervisors must therefore be vigilant to the evolving outlook to ensure that the global banking system is resilient. The Committee will continue to closely monitor bank and market developments and assess the financial stability risks of higher interest rates to the global banking system.

In addition, the Committee agreed to take stock of the regulatory and supervisory implications stemming from recent events, with a view to learn lessons.

So the theme of our conference today – future-proofing supervision for an innovative banking world– is a highly topical one. We have witnessed profound changes to the global banking system as a result of ongoing structural and disruptive factors, geopolitical developments and conjunctural risks. Indeed, many of these issues were discussed by the Committee earlier this week and summarised in the press release published yesterday.4 But there are also perennial challenges and risks faced by banks and supervisors. So it is right to take a step back and review our supervisory and regulatory philosophy in the light of such changes.

Today, I will focus the rest of my remarks on one area which has witnessed profound transformation, namely, the use of macroprudential regulation and supervision.


1 BCBS (1993a, 1993b, 1993c).
2 Ibid.
3 Ibid.
4 Press release: Basel Committee to review recent market developments, advances work on climate-related financial risks, and reviews Basel Core Principles (BCBS (2023)).