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Bank regulation has gone too far, ECB supervisor argues

FILE PHOTO - The logo of the European Central Bank (ECB) is pictured outside its headquarters in Frankfurt, Germany, April 26, 2018. REUTERS/Kai Pfaffenbach

FRANKFURT (Reuters) - Bank regulation has gone too far, yet supervisors may still be missing risk factors that could herald the next crisis, the outgoing Dutch member of the European Central Bank’s Supervisory Board said on Thursday.

Banks have faced increasingly stringent rules since the global financial crisis and critics argue that excessive regulation could force financial companies to take on new types of risks that are not yet on the radar of supervisors.

“Sometimes, supervision goes too far,” Jan Sijbrand, the Dutch central bank’s top supervisor said in a farewell speech. “There is an increasing lack of any consistent theoretical structure in the recent supervisory requirements that are coming in from all angles.”

“And these measures are to a growing extent becoming removed from the logic of sensible risk management,” he added, speaking in Amsterdam.

Sijbrand argued that a lack of coordination between regulatory bodies hampered their work as different agencies were vying with each other to restrain lenders without listening enough to each other.

He also warned that supervision has lost momentum, becoming big and expensive while at the same time losing its focus on making the sector safer. This risked missing new signs of trouble as the finiancial sector evolved.

“During the last crisis, this issue centered on asset backed securities which slipped through, between market risk control and credit risk control,” Sijbrand said.

“At the moment you can see something similar with financial market infrastructures - in particular central counterparty clearing houses, falling in between payment services oversight and prudential supervision,” he added.

The lack of powers in tackling money laundering was also a worry as fragmentation of responsibility risked creating blind spots and leaving major risks undetected, he argued.

Reporting by Balazs Koranyi; editing by David Stamp