Speaker 1: Bank regulation and supervision are essential for the stability and inclusiveness of the banking sector. Bank regulation refers to the written rules that define acceptable behavior and conduct for financial institutions. Bank supervision refers to the enforcement of these rules. The main objectives of bank regulation and supervision are to protect depositors, ensure financial stability, promote fair competition, and foster financial inclusion. However, the global financial crisis of 2008 revealed many shortcomings in the pre-crisis regulatory framework. Some of these shortcomings were Inadequate capital and liquidity requirements that failed to capture the risks and vulnerabilities of banks, especially those with complex and interconnected activities. Weak governance and risk management practices that allowed excessive risk-taking, misaligned incentives, and poor accountability. Insufficient resolution mechanisms that lacked the tools and powers to deal with failing banks in an orderly and timely manner, resulting in costly bailouts and moral hazard. Fragmented and inconsistent regulatory and supervisory approaches across jurisdictions that created regulatory arbitrage, gaps, and overlaps. In response to these shortcomings, the international community launched a comprehensive reform agenda to strengthen the regulatory and supervisory framework for banks. Some of the key elements of this agenda are Higher and better quality capital and liquidity standards that aim to enhance the resilience and soundness of banks, especially those that are systemically important. Stronger governance and risk management frameworks that require banks to have effective board oversight, internal controls, risk appetite, disclosure, and compensation policies. Enhanced resolution regimes that provide authorities with the tools and powers to resolve failing banks without disrupting financial stability or using public funds. Greater cooperation and coordination among regulators and supervisors across jurisdictions to promote consistent implementation, reduce regulatory arbitrage, and foster cross-border cooperation. The implementation of these reforms has made significant progress at the national level, but there are still gaps and challenges that need to be addressed. Some of these challenges are Balancing the trade-offs between enhancing resilience and supporting growth, especially in the context of the COVID-19 pandemic that has increased the stress on banks and their customers. Adapting to the rapid changes in technology, innovation, and competition that are transforming the banking landscape and posing new risks and opportunities. Ensuring effective supervision that is risk-based, forward-looking, data-driven, and proportionate to the size, complexity, and systemic importance of banks. Therefore, bank regulation and supervision remain a critical policy area that requires continuous monitoring, evaluation, and improvement to ensure the stability and inclusiveness of the banking sector. One of the main lessons learned from the global financial crisis of 2007-2009 was that many banks lacked sufficient capital to absorb losses and withstand shocks. Capital is the cushion that protects depositors and creditors from bank failures and reduces the need for public bailouts. Therefore, after the crisis, regulators around the world introduced reforms to strengthen and harmonize capital regulations for banks. The Basel Committee on Banking Supervision, BCBS, is the international body that sets standards for bank regulation and supervision. The BCBS issued a series of reforms known as Basel III, which aimed to improve the quality and quantity of bank capital, as well as to enhance risk management and governance practices. Basel III also introduced new capital buffers to promote a more forward-looking approach to capital regulation and to address systemic risks. Some of the key features of Basel III are Raising the minimum requirement for common equity, which is the highest quality of capital, from 2% to 4.5% of risk-weighted assets, RWA. Increasing the total minimum capital requirement, which includes common equity and other forms of capital, from 8% to 10.5% of RWA. Introducing a capital conservation buffer of 2.5%, which can be used in times of stress, but will restrict banks' ability to pay dividends and bonuses if they fall below the buffer level. Introducing a countercyclical capital buffer of up to 2.5%, which can be imposed by national authorities when credit growth is excessive and poses a threat to financial stability. Introducing a leverage ratio of 3%, which is a non-risk-based measure of capital adequacy that limits the amount of debt that banks can take on relative to their equity. Introducing liquidity requirements, such as the Liquidity Coverage Ratio, LCR, and the Net Stable Funding Ratio, NSFR, which ensure that banks have enough liquid assets to meet short-term and long-term obligations. Introducing additional requirements for Systemically Important Banks, SIBs, which are banks whose failure would have significant negative consequences for the financial system and the economy. These include higher loss absorbency, more intensive supervision, and resolution plans. The implementation of Basel III has been gradual and phased in over several years, starting from 2013 and expected to be completed by however, some countries have adopted stricter or faster rules than the Basel Standards, while others have faced challenges or delays in implementing them. According to a report by the BCBS in 2020, most member jurisdictions have adopted the Basel III risk-based capital rules, but some gaps remain in the adoption of the leverage ratio, the liquidity requirements, and the SIBs framework. The impact of Basel III on bank risk and stability has been subject to extensive research and debate. Some studies have found that higher capital requirements have improved bank resilience and reduced the probability of bank failures, without adversely affecting bank lending or economic growth. Other studies have suggested that higher capital requirements have increased bank funding costs and reduced bank profitability, which may have negative implications for financial intermediation and innovation. Overall, it can be said that capital regulations have been strengthened and harmonized after the crisis to improve the resilience and solvency of banks and reduce the likelihood of systemic crises. However, there are still challenges and trade-offs involved in designing and implementing optimal capital regulation for banks, especially in a dynamic and complex financial environment.