José Siaba Serrate, co-chair of the “An International Financial Architecture for Stability and Development” task force, was one of the members on the Financial Regulation panel at Think 20 Mumbai. The event took place in India on the 12th and 13th of March and is a T20 Argentina associated event.

Here is the transcription of his speech:

It is vital that the finance track stays on track.

I mean the Hamburg action plan agreed upon in the G20 german presidency. Strong and sustainable growth requires solid finances at its back. And we need financial inclusion for social progress.

The G20 agenda goes for building financial resilience in order to help strengthen economic growth, reduce the negative impact of shocks and set off the virtuous circle of high resilience and strong growth.

So, improving the global financial infrastructure is a priority. And work has been done in strengthening the basic architecture, extending the global safety net, adding capital to the IMF, figuring out new lending instruments, forging cooperation between the IMF and the regional financial agreements, and the promotion of the MDBS with their capacity to mobilize private capital and boost investment in infrastructure. Effort is focused in the full and consistent implementation of the financial stability board (FSBb) agenda. Bringing Basel III to concrete reality is the main objective.

But the job requires continuous monitoring and addressing of risks and vulnerabilities (such as those related to shadow banking and other market-based finance activities). And the definition of risks under the regulatory umbrella has increased significantly: there is credit, liquidity, market, operational and derivative counterparty risks that should be controlled.

Keep in mind that costs of compliance have gone up with the new framework and small sized and less complex institutions, given their lack of scale, could be penalized relatively to the lower risks they might imply for the whole system.

So, significant progress has been made. Larger institutes have doubled their high quality capital ratios, hold bigger liquidity buffers, have modified their balance sheet structures to facilitate resolution in case they turn non viable. Transactions are more secure. Financial flows have been restored after the crisis and financing costs are low.

But important pending issues remain threats include assuring the adequate assembly between regulation at the national level and the new international framework (an issue that will grow in relevance as the trump administration push for financial deregulation), dealing with fintech (that is letting innovation take place, and being able to capture the benefits without the pitfalls that it might produce).  We learned a lesson in this field during the great financial crisis: you should monitor activities, not only entities, to discover the weak spots. The shadow banking is a moving zone as technology moves itself.

But not two crisis are created equal. We should also remember the S&L crisis of the eighties: not only sifis matter. S&L banks were not too big to fail, but too many. And they provoked a headache, too. National regulation and surveillance might be the weak link of a well thought global chain.

Keep in mind the vast array of challenges ahead of us. Take cryptocurrencies which have been termed as a “fraud”, a “ponzi scheme”, the “most brilliant scam in history” and even an “environmental disaster”, but nonetheless they have thrived despite extreme volatility and frequent falls from grace. Cryptocurrencies might lack intrinsic value, but they show plenty of market value – as of these days – and you might not fault a conspiracy of silence this time.

Too small to be considered a significant systemic financial instability risk, too big the headlines they produce to ignore, too recent so as to be considered anything but an offspring of the post crisis reform era, too similar to other frenzies in the past – the dotcom or the subprime bubbles – not to think that maybe we are failing again. So, how should we deal with them? In special, with the prospect of a sucking game where crypto assets end with the masses, without final market value, while putting fortunes in the wallets of “innovators”.

I think there is a whole demographic dimension that demands paying attention to as societies age rapidly, but at different paces. This topic will grow in importance as savers in many parts of the world get older and will soon retire, and need to lend their resources to people and companies in young societies, in other parts of the world, to invest and earn the income they will consume during the retirement years. There is a need of sound financial systems in those young countries, too.

Finally, we should pay attention to the agitated field of trade and the prospects of trade disputes. We have been used to finance to unravel first, and then damage the real economy. But disease and contagion could go the other way round, too. The two tracks of G20, the Sherpa and the finance tracks, cannot disengage one from the other (and fortunately that is what the Argentinian G20 presidency thinks).

And do not forget debt (its invisible hand that promotes bubbles and frenzies, and its weak stomach when it receives a good jab) real tensions matter more to finance when leverage is higher, and debt levels have increased significantly – not diminished – due to the great crisis and the particular way in which it was handled.

Keep in mind that when the T20 gathers again in September in Buenos Aires, 10 years would have passed since the Lehman Brothers collapse. And exactly one year from now, the bull market would also celebrate a decade (and soon afterwards, the global economic recover). In parallel, central banks plan to be executing their exit strategies from extraordinary non conventional policies.

The economic cycle does not die of age, or vertigo, but we should work considering one feasible scenario: that the new regulatory framework might be put under stress not far away in the horizon.  We´d better have our homework done when that time arrives.