Director of DNB bank warns that relaxing banking sector rules is a bad idea

Klaas Knot, the director of De Nederlandsche Bank (DNB) thinks that relaxing the rules for the banking sector is a bad idea. He said this during the annual meeting of the International Monetary Fund (IMF) in Washington. Several large European countries would get their way if Brussels would choose to lower the capital requirements but he thinks this would come along with irresponsible risks.

Germany, France, and Italy recently called on the European Union to be cautious about financial regulation and instead focus on strengthening the competitiveness of the banking sector. According to Bloomberg, it was the latest sign of a global political shift that is prioritizing economic growth over-regulation.

But Knot, who is also chairman of the international regulator the Financial Stability Board (FSB), has issued a warning regarding this. The rules for banks are there to create stability he thinks. In other words, a situation in which banks can stand on their own two feet and in which the buffers are high enough to withstand a blow.

"I will soon be in the G20, the G7 and the story I keep telling my political bosses is that they cannot achieve their socio-economic goals in the absence of financial stability," he said in an interview with ANP. "Financial stability provides the foundation for the growth of income and prosperity."

“If financial instability were to occur again, such as a banking crisis, forget it. They can throw these objectives out the window immediately because they will be busy again with saving banks and spending taxpayers' money to prevent the economy from going into free fall."

Knot also pointed out that not all international standards for capital requirements agreed upon after the crisis have yet been implemented. It looks like it will take years for all those so-called Basel III standards in Europe and the United States to be incorporated into regulations. As head of DNB, Knot will not experience that, because his second and final term will end on 1 July next year.

"Come on, let's just implement what we all agreed on," Knot pleaded again. "We didn't do that for nothing, namely because we want to prevent a repeat of 2008 at all costs."