Safer than ever before? An assessment of the impact of regulation on banks’ resilience eight years on

Eight years after the crisis, the regulatory framework has changed substantially. Moving away from a predominantly capital-focussed regime under which banks were able to operate with very high leverage, new regulations have been agreed regarding all aspects of prudential regulation, from higher capital levels to new liquidity proposals and new governance standards. But has this made banks more resilient in practice? Are they better able to absorb shocks while continuing to provide critical economic services? In this article, the author takes stock of “where we are on the path towards putting into practice the new regulatory framework”. She then discusses what this has meant for resilience. To what extend are banks now capable of dealing with losses and how does this compare with 2008? It is too early to draw firm conclusions on the steady state impact, given that implementation of post crisis reforms is still under way. However, assessments of banks’ resilience through stress tests indicate that we have already seen substantial improvements. The author concludes by giving a brief overview of what is yet to come and by setting out key priorities for future work.