The challenge of financial regulation and supervision

To some extent, the Covid pandemic has blurred the efforts being made to build what will be the immediate future of financial regulation and supervision. Like any reaction to a crisis of capital proportions, such as that of 2008, the pendulum swung to the other extreme. Indeed, until before the subprime episode, the international financial system was poorly regulated in an environment of high risk due to interest rates that were sometimes too low. The perfect storm was configured to, after trillions of dollars, move towards a regulatory squeeze that today we know as Basel III. The objective has been to design an international financial system capable of passing through the new global economic architecture. With the urgent need for credits, alternative sources of funding and other financial tools, users still skeptical, require signs of certainty in a context of uncertainty. In this logic, the regulatory framework will have to advance with the consequent demand to strengthen supervision in the face of the post-covid era. This stage will have strong macroeconomic pressures as a result of the withdrawal of the excessive expansionary measures that characterized the last five years, together with the countercyclical capital cushion and the adjustment of the global economic cycle.

The foregoing warns of the need to understand the new risks, as well as to create a solid macroprudential coordination that anticipates foreseeable problems such as the vulnerability of the risk matrix and eventual bankruptcies of global banks with a direct impact on local supervisory ecosystems. It is naive to think that the negative elements that gave rise to the double bubble trouble in 2008 have disappeared, on the contrary, they remain latent to which are added the challenges entailed by the growing adoption of fintech, notably fintech, and the tendency to cannibalism of these by traditional banking, as well as the improvement of cybersecurity. The new concept of financial stability also anticipates environmental sustainability, which requires both regulators and supervisors to adapt their regulatory models to anticipate the impact of climate change on economies. In the future, financial regulation will be effective in calibrating the risks of the past, the severe monetary and current economic cycle adjustments, with the new challenges imposed by technologies and caring for the environment; the task in front of us both in the global environment and locally.

Doctor in Economic Development and Law

AUTHENTICITY

Professor at the Universidad Panamericana, Ibero and TEC de Monterrey. He has worked at the Bank of Mexico, the Ministry of Finance, in Washington, DC and in the Presidency of the Republic. He is currently studying for a doctorate in Philosophy with research in the field of ethics and economics. Author of books on economic history, financial regulation and public policy.