Financial Regulatory Forum

BREAKINGVIEWS-Obama reforms could undermine global bank rules

G20/ By Peter Thal Larsen and Hugo Dixon

LONDON, Jan 25 (Reuters Breakingviews) – The overhaul of the global financial system has entered a new, more complicated phase. For two years, a fragile multilateralism has prevailed as the world’s largest economies agreed that changes should be designed and adopted on a global basis. The task of redesigning financial regulation was largely delegated to central bankers, regulators and other technocrats.

That consensus is creaking following President Barack Obama’s double-barrelled attack on Wall Street investment banks. The new tax on banks’ wholesale liabilities and the planned prohibition of proprietary trading by deposit-taking institutions both complicate the aim of getting a new effective global regime for regulating the industry — but in different ways.

Look first at the new tax. In principle, it is sensible to charge large financial institutions for the implicit guarantee they receive from taxpayers when they rely on hot short-term money to fund themselves. But there is already a global push, under the aegis of the G20, to boost the size of banks’ capital and liquidity cushions. This exercise, being masterminded by the Basel Committee, has now entered the “calibration” phase — where the precise numbers are being modelled.

The problem is that the new levy to some extent does the same job as the planned new Basel rules. There is a risk therefore that the cumulative effect of regulations and taxes banks could be so weigh down banks that they rein in lending, crimping the economic recovery. Of course, it would be theoretically possible to shave the capital and liquidity requirements a bit to make way for the new tax. But coordinating that over multiple jurisdictions will be quite tricky now the U.S. has moved unilaterally.

The proposed “Volcker rule” — which would ban proprietary trading by banks — is potentially an even bigger spanner in the works. This is because it diverts attention from the fundamental causes of the crisis by scapegoating one particular area. The Volcker rule would not have stopped Lehman Brothers going bust, as it was not a deposit-taking institution. Nor would it have prevented bailouts of Fannie Mae, Freddie Mac, AIG, Washington Mutual, Wachovia and so forth. It largely misses the mark.

Basel group wants stricter bank standards by 2012

The Bank for International Settlements (BIS), central bank to the world's central banks, and parent organisation of the Basel Committee on banking supervision. By Sven Egenter and John O’Donnell

ZURICH/BRUSSELS, Dec 17 (Reuters) – Banks face having to hoard more funds or turn to investors for fresh capital within as little as three years under proposals by a body which guides global financial regulation.

Seeking to prevent this year’s financial crisis from being repeated, the Basel Committee of central bankers and supervisors on Thursday demanded stricter rules for the capital which banks maintain to shield their depositors and shareholders from loss.

Although its recommendations are not binding, they herald a tougher regime for banks; regions such as the European Union will use them as a reference, and higher capital requirements may end up slowing down lending or investment banking business. On Thursday, the EU said it was studying the Basel report.

Global regulators to give banks grace period on capital rules – sources

By Noriyuki Hirata and Krista Hughes

TOKYO/FRANKFURT, Dec 16 (Reuters) – Global regulators will give banks a grace period before forcing them to implement stricter capital rules, three people said on Wednesday, easing concerns that lenders might need to issue massive amounts of shares in the near future.

Shares of major Japanese banks surged on the news, with Mizuho Financial Group Inc and Sumitomo Mitsui Financial Group Inc both gaining more than 14 percent.

European bank shares rose 1.3 percent on relief that banks would have more time to adjust to new rules being drafted by the Basel Committee on Banking Supervision, made up of central bankers and regulators from nearly 30 countries.

EU shelves plan to unveil disputed bank reform for now

European Commissioner in charge of Internal Market and Services Charlie McCreevy speaks during a news conference at EC Headquarters in Brussels September 23, 2009. (file photo)REUTERS/Sebastien Pirlet   (BELGIUM POLITICS BUSINESS) By John O’Donnell and Huw Jones
BRUSSELS, Oct 15 (Reuters) – The European Commission has abandoned plans to publish laws on bank capital rules this month, the EU executive said, amid a dispute that puts a question mark over its centrepiece reform to the way banks work.

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EU banks must have cash buffer for crisis – regulators

By Huw Jones
LONDON, Sept 22 (Reuters) – Banks in the European Union must have a cash buffer to survive the first month of a crisis, regulators said on Tuesday, sparking industry concern that cross-border groups will face a new patchwork of rules.

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Banks eye clock on tougher capital rules, may face pressure to act soon

Governor of the Bank of Italy Mario Draghi, who also chairs the international Financial Stability Board, speaks during the International Organisation of Securities Commissions (IOSCO) annual meeting in Tel Aviv June 10, 2009. REUTERS/Gil Cohen Magen By Huw Jones and Steve Slater
LONDON, Sept 8 (Reuters) – Banks face pressure to raise billions of dollars in fresh equity to meet tough new capital rules and many European lenders may need to act soon to improve quality even though the proposals will not be fully felt for several years.
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International regulators agree on new bank rules

bis    BASEL, Sept 6 (Reuters) – Central banks and regulators of the world’s leading economies agreed on a set of new banking rules on Sunday aimed at preventing future financial crisis. (more…)

ECB officials defend Basel as US plans replacement

Bank of France Governor Christian Noyer attends a conference organized by the Paris Club and Institute for International Finance (IIF) on the impact of the crisis on emerging and developing countries in Paris June 25, 2009.  REUTERS/Benoit Tessier LONDON, Sept 4 (Reuters) – European officials defended the globally-agreed Basel II capital rules for banks on Friday despite a U.S. call for its replacement with a sweeping new regime within three years.
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ECB’s Noyer says leverage ratio makes no sense as trouble signal

BUENOS AIRES, Sept 1 (Reuters) – The idea of a simple leverage ratio to help anticipate financial crises is unlikely to work, European Central Bank governing council member Christian Noyer said on Tuesday.

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Basel panel sets higher capital rules for bank trading books

BASEL, Switzerland, July 13 (Reuters) – The Basel Committee published the final version on Monday of its new rules that will force banks to tie up more capital to offset trading book risks from the end of 2010. (more…)

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