Spanish central banker set to inherit big challenges as next BIS head

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The world’s top central bankers are this weekend expected to approve the appointment of Pablo Hernández de Cos, the former head of the Bank of Spain, as the next general manager of the Bank for International Settlements. 

The move comes at a delicate time for the BIS, which is a forum for the world’s central banks and helps to manage their foreign exchange reserves, after Donald Trump’s election as US president threatened to shatter the already fraying global consensus on financial rulemaking.

Hernandez de Cos, whose six-year term as Spain’s central bank governor expired in June, is expected to be proposed as the next BIS general manager this weekend and is almost certain to be confirmed by its board, according to two of its members.

He has been lined up to replace Agustín Carstens, the current BIS general manager and former governor of the Bank of Mexico, when his eight-year term expires next year.

The Spaniard’s appointment would position him as a contender to replace Christine Lagarde when her eight-year term as ECB president ends in 2027.

The BIS hosts the Basel Committee on Banking Supervision, which sets the global standards for banking supervision, giving its head a key role in shaping global consensus on financial rules and coaxing its members to stick to these commitments.

Central bank heads fear the US president-elect will slash business and financial regulation — imperilling the Basel rules that synchronise capital requirements for big lenders around the world.

The US Federal Reserve has already been forced to water down its proposals for the so-called “Basel Endgame” rules after heavy bank lobbying. European officials believe the US could ditch them entirely, triggering a global race to the bottom on financial supervision.

Hernandez played a key role in shaping the final agreement on the rules as he chaired the Basel Committee on Banking Supervision from 2019 until he stepped down earlier this year.

The EU has passed legislation which is estimated to increase capital requirements for the region’s banks by 9 per cent by the time the rules are fully implemented in eight years’ time.

Claudia Buch, chair of supervision at the European Central Bank, stressed the importance of sticking to the plan in Europe, whatever happens in the US. “We will do it and expect that the others will do it,” she told an event in Amsterdam on Thursday. 

Buch also pointed to an ECB study that found big Wall Street banks already have significantly higher capital requirements than their European counterparts.

“It is important for financial stability in Europe to fully implement it, as opening it up to discussion would only open us up to further uncertainty,” she said, adding that previous banking crises had led to losses worth 7 per cent of the global economy.

The BIS board is made up of the heads of many of the world’s biggest central banks including the Fed, the ECB and those of China, Brazil, India, Mexico, South Korea, Canada, Germany, Italy, the UK and the Netherlands.

The BIS said: “We will not comment on speculation and will issue a media release when the process concludes.”