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Supporting sustainable growth: the role of safe and stable banking systems

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  • Ingves, S.

Abstract

Banks play a key role in financial intermediation, facilitating efficient capital allocation and maturity transformation. However, this can lead to excessive risk-taking, which, if not appropriately accounted for, can increase vulnerability to financial shocks. As we have witnessed in recent years, banking crises can have a severe and persistent negative effect on financial system stability and economic growth. Moreover, these negative impacts are indiscriminate, affecting a wide variety of sectors, the labour market and even spreading distress across borders. Empirical analyses show that financial system regulation, including the new Basel III framework, helps ensure greater financial system stability, by reducing the probability of financial crises. While there may be costs in the short-term, these are borne by those taking the risks and, importantly, outweighed by the benefits to society as a whole. In this way, banking system regulation, and the Basel III framework in particular, plays a significant role in supporting strong and durable growth.

Suggested Citation

  • Ingves, S., 2015. "Supporting sustainable growth: the role of safe and stable banking systems," Financial Stability Review, Banque de France, issue 19, pages 65-73, April.
    • Handle: RePEc:bfr:fisrev:2015:19:06
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    References listed on IDEAS

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    6. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 393-414.
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