Current challenges for the banking industry: the role of public policy

Remarks by Mr Fernando Restoy, Chair, Financial Stability Institute, at the Mexican Banking Association Finance and Markets Seminar 2023 Virtual, 24 November 2023.

The environment in which the banking industry operates has changed, mainly as a consequence of three developments: technological disruption, the more demanding regulatory framework and increasing competition from non-banks in some market segments. All those developments have implications for the sustainability of the business model of many commercial banks and have increased risks in areas including deposit stability, operational resilience and the exposure to complex leveraged institutions. Generalised changes in the risk profile of financial institutions mean a reflection on possible adjustments to the current regulatory framework is welcome. However, a significantly tighter regulatory stance might not necessarily be the most effective tool to address banks' all new vulnerabilities and may have undesired effects on their intermediation business. By contrast, there is large scope to strengthen supervisory practices to make them more intrusive and risk-sensitive.