Sunday 18 March 2018

Banking sector must learn to live with failures - Central Bank

Philip Lane, governor of the Central Bank
Philip Lane, governor of the Central Bank
Donal O'Donovan

Donal O'Donovan

A WAVE of technological innovation could unleash dramatic changes in the Irish banking landscape, and we'll need a system that tolerates the idea that some businessed will fail, according to the head of the Central Bank.

So-called FinTech - driven by new startups or innovation from within existing players - has the potential to disrupt the status quo and will threaten individual firms and even whole business models, Central Bank governor Philip Lane said in a speech at the Financial Services Ireland-Ibec annual lunch yesterday.

As that happens the Central Bank must focus on maintaining financial stability and protecting consumers, he said. But, in a sign of the shift in official thinking since the bank bailouts, the governor said the advent of a period of change brings the idea of resolution - shutting failed financial firms - into sharp relief.

"We have to have a regulatory system that tolerates failures of individual firms. It cannot be the case that we allow zero failures," he said.

Eight years ago the policy that no bank could be allowed to fail, regardless of its financial situation, ended with taxpayers shouldering a €64bn bailout bill.

Mr Lane said that there are conflicting forces at work in reshaping the structure of the financial sector.

"In one direction, economies of scale and scope may result in a higher degree of consolidation across financial services providers," he said.

"In the other direction, there are other forces that may lead to increasing fragmentation in the provision of financial services, with specialist providers increasing the level of competition in individual market segments and threatening the integrated model of universal banking."

Mr Lane said the Central Bank has to ensure it keeps up to speed with the changing technological environment "and is able to assess the level of preparedness of regulated firms".

He added: "The challenge for policy makers is to understand and attempt to appropriately regulate the evolving financial services landscape, while at the same time balancing often-competing objectives of competition and choice, financial stability, and the effectiveness of macroeconomic policies."

Mr Lane also said that the Central Bank is embracing technological innovation, such as undertaking better analysis of "big data" in the identification of financial risks.

Irish Independent

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