The global financial system and its regulatory landscape have changed dramatically since the 2008 financial crisis. In response, central banks, regulators and policymakers introduced new requirements aiming to increase the resilience and stability of the financial system. These efforts made the banking sector well resistant to the current pandemic. However, the current situation reveals some structural shortfalls in the prudential regulatory framework.
Completing the Banking Union, avoiding market fragmentation and national ring-fencing are core elements the EU should swiftly address. At global level, a discussion has started about the lessons learnt from the COVID-19 pandemic in relation to procyclicality as well as the usability of capital buffers. The Issue Note makes some suggestions in this regard. Finally, we comment on some of the latest developments regarding the prudential treatment of third country banks in the EU.