Financial Stability at Risk: Warning from France’s Central Bank Governor
As the world watches the incoming U.S. administration, concerns are growing about the potential impact of financial deregulation on global stability. France’s central bank governor, Francois Villeroy de Galhau, has sounded the alarm, warning that such moves could increase the risk of a financial crisis.
A Return to Radical Changes?
The election of Donald Trump as U.S. President has raised the prospect of sweeping changes to the U.S. regulatory framework, which has been built up over decades to oversee financial services, banking, and digital currencies. This has sparked fears that the hard-won gains in financial stability could be undone.
Deregulation: A Dangerous Path
Governor Villeroy de Galhau has warned that financial deregulation, as advocated by some in the United States, would be perilous for the financial system itself. He emphasized that adopting a light-touch approach to regulation would put financial stability at risk, not just in the U.S. but globally.
A Lighter Touch on Banking?
Trevor Hill, the potential next head of a U.S. banking regulator, has outlined plans for a more relaxed approach to banking regulation, covering areas such as capital reserves and cryptocurrency. This has raised concerns that the U.S. may backtrack on its commitment to implementing the Basel III regulations, which have already been adopted by more than two-thirds of the countries belonging to the Basel Committee on bank regulations.
Europe Must Adapt
While the Basel III regulations have helped maintain stability in the European banking system, Governor Villeroy de Galhau believes that European regulators should consider adjustments to ensure the sector remains competitive. He also warned that adopting a light regulatory touch for non-bank financial actors, such as funds, venture capital, private equity, and cryptoassets, would also put financial stability at risk.
A Call to Caution
As the global economy navigates uncertain times, it is essential that regulators prioritize financial stability and resist the temptation to roll back hard-won gains in regulation. The warning from France’s central bank governor serves as a timely reminder of the importance of prudent regulation in maintaining global financial stability.
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