Financial Regulatory Forum

INTERVIEW – UK’s Darling backs U.S. bank capital plan

By Reuters Staff
September 4, 2009

By Sumeet Desai and Matt Falloon
LONDON, Sept 4 (Reuters) – British finance minister Alistair Darling on Friday threw his weight behind U.S. proposals to strengthen the capital buffers of banks but said there were still differences of opinion among international policymakers.

Darling, in an interview with Reuters ahead of a meeting of G20 finance ministers and central bankers in London, also warned that the world risked a second recession if it withdrew stimulus measures too quickly.

Policymakers are expected to agree this weekend that expansionary policies need to remain in place for as long as it takes to ensure a recovery. Progress is also expected on how to best clean up the crisis-hit financial sector.

“We agree with the Americans that, across the world, banks do need to strengthen their capital positions,” Darling told Reuters in an interview ahead of a meeting of G20 finance ministers and central bankers in London this weekend.

“Inevitably, different countries have different emphases. It’s very important that people recognise that the capital positions of banks have to be strengthened. It’s important that we see all of these proposals as a whole.”

Darling warned against repeating the mistakes of the 1930s by withdrawing stimulus too early and throwing the world back into recession.

There has been evidence that several large economies such as Japan and Germany emerged from recession in the second quarter of this year.

“We’ve made those mistakes before,” he said. “Once recovery is established that is the time to ensure that we gradually withdraw the extraordinary measures we have in place, that we ensure we start to rebuild the fiscal position of every country that has been affected.”

Darling said markets were “right to assume countries will, as we get into recovery, take steps that we’ll reduce those deficits”. But he highlighted risks to recovery from volatile oil prices and rising unemployment.

“There’s still an awful lot more to do,” he said.”

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