Jan Frait, CNB Deputy Governor
Opening Remarks at the 8th European Supervisor Education Initiative Conference
“Deregulation & Simplification and AI in Supervision”
Prague, 20–21 May 2026
Welcome to the Czech National Bank, an institution celebrating 100 years of existence. It is not unique in this – at least 35 central banks can claim a history that is even longer. However, not many of them still conduct autonomous monetary policy, and few have the range of powers and responsibilities that we have here in Prague.
It is symbolic to see you here in the Commodity Exchange. This building, with its stately hall, was given a second chance at the end of the last century. Eyewitnesses say it was a run-down place before the Czech National Bank renovated it and connected it to its traditional headquarters behind this wall 26 years ago.
The end of the last century was a tough time for the CNB, in particular in its role as supervisory authority. June 2000 saw the failure of a systemic bank, IPB, headquartered just opposite this building. A bailout with a hefty dose of public money had to be orchestrated. Because of this and other events, the CNB lost part of its formal/legal independence at the time and had to fight hard to regain it.
The central bank – at the time the monetary authority and banking supervisor – was an easy target, battered by the monetary and financial instability of previous years. With the help of the Constitutional Court, the CNB soon got its independence back – in 2001, just 25 years ago. We started a new era, a more successful one. Successful to such an extent that just 20 years ago, the country’s legislators entrusted us with supervising all other sectors of the financial market. Step by step, we became what we are now: an integrated monetary, supervisory, macroprudential, resolution, code of conduct, consumer protection and AML authority, all under one roof.
The IPB bailout that I mentioned was our last one. The response to this mess was tougher supervision, not more detailed regulation. Complexity came soon afterwards, not from here, but from international institutions. The Basel II standard was born in the late 1990s, though it was not published formally until 2004. International Accounting Standard 39 (IAS 39) was approved in 2000, though it, too, came into effect later. These two reforms paved the way to greater complexity. They promised a better world, but they were seemingly killed off by the Global Financial Crisis a few years later. The responses to the crisis added further regulation and created more sources of complexity.
The debate these days is about simplification. We welcome this idea. The CNB last year abolished 36 rules contained in its decrees, including some reporting obligations. It also proposed to the Ministry of Finance the repeal of a number of statutory duties applying to financial market participants.
Looking at this debate at the EU level, we can see that the campaign to simplify the regulation of the financial markets has become pretty dynamic. We have seen many documents arguing that the EU should simplify the bank capital rules without deregulation, make the structure of capital buffers less complicated, remove overlapping requirements and free up savings sitting idle in overly conservative products. The CNB understands, for example, the rationale for having two macroprudential capital add-ons instead of five or six. Personally, I doubt that summing two or three single-digit numbers is all that burdensome. But I understand that this reform may ultimately deliver a rather lower total, leading to a drop in the overall capital requirements.
It reminds me in a number of respects of the campaign that was running at the end of the last century. Given this, I dare to end this part of my introduction with one recommendation: Think twice about whether the situation in which banks have to finance 4–6 per cent of their assets with capital, and thus 94–96 per cent with debt, is truly an impediment to economic growth that needs to be addressed. I would recommend focusing more on a number of processes that really are complex.
My final remarks may surprise some of you. If you were to ask me whether we need any more regulation of the banking sector, I actually think we do. To use the words from a song by Bob Dylan, we need one more layer of skin, even if it is only a tiny layer. What is missing is a sovereign risk tool covering credit risk and concentration risks in banks holding government bonds. I think this is badly needed for one simple reason: very low or zero risk capital charges provide an incentive for credit expansion in particular debt segments, be it mortgages or government debt.
I understand that we are very far from opening such a discussion in the near future. This was not always the case – the window of opportunity was open for some time after the euro area debt crisis. I attended some meetings of the high-level working group of the European Economic and Financial Committee on regulatory treatment of sovereign exposures. The group discussed the issue seriously between 2015 and 2016. Unfortunately, ECOFIN did not find a consensus on reform in 2016, and all the corresponding material has been kept confidential, including the final report. Instead, the Member States have been recommended to “await the outcomes of the Basel Committee”.
We are still waiting. In the meantime, enjoy this conference.