During a farewell event for the governor of the Dutch National Bank, Klaas Knot, organized by the institution, Lagarde emphasized the “vital” necessity for policymakers to adapt regulation and supervision in a “challenging” environment. However, she argued that instead of lowering standards for banks, it is crucial to raise them for non-banking entities.
Specifically, this applies to those performing activities similar to traditional banking or with significant ties to the banking sector.
This approach, according to the ECB chief, would address banks’ concerns about unequal conditions compared to non-banking entities while also ensuring better supervision, thereby illuminating potential risks to financial stability that have remained hidden within the economy’s shadows.
Lagarde highlighted that if risks emerge in sectors beyond regulators’ and supervisors’ reach, a scenario similar to the pre-2008 financial crisis could recur: monetary policy would effectively become the sole tool available to “patch all holes” and “rein in financial exuberance.”
She stressed the need for legislators to “resist regulatory fatigue and redouble efforts to extend stronger global rules to non-bank entities.”
Nevertheless, she observed that “after a decade of legislative additions,” it is time to “evaluate how regulation can be simplified to prevent redundancies and unnecessary burdens on financial institutions.” Lagarde noted that the ECB has a task force on simplification preparing proposals for the European Commission to consider.
“The objective is not to relax rules or undo achievements,” said the ECB president, clarifying that the focus is on reducing unnecessary complexity in aspects of capital structure, information, and supervision.
The statements arrive at a time when Brussels is undertaking a regulatory simplification exercise in diverse areas such as corporate sustainability obligations, agricultural policy, or digital standards, aiming to enhance the EU’s economic competitiveness. Concurrently, the United States government is pushing for deregulation and supporting crypto-assets.
