Is the Financial Stability Board the regulator to rule them all?
By Susannah Hammond, Thomson Reuters’ regulatory intelligence team. The views expressed are her own
LONDON, May 9 (Thomson Reuters Accelus) – The Financial Stability Board, regulatory policy maker of choice for the G20, has started to show its teeth. From its roots as the supranational setter of standards, guidance, policies and principles in the wake of the financial crisis, the FSB has started to clarify how it will monitor compliance with its requirements as well as deal forcefully with breaches.
A progress report on one of its strands of work regarding promoting global adherence to regulatory and supervisory standards on international cooperation and information exchange highlights how the FSB uses the International Monetary Fund as its objective reviewer of compliance with international standards. Critically, it shows how the FSB has taken the first steps in setting out the implications for what are called non-cooperative jurisdictions.
The FSB has noted that a small number of jurisdictions prioritised for evaluation have not, as at the end of April 2011, cooperated satisfactorily with the its process for promoting adherence to regulatory and supervisory standards on international cooperation and information exchange. It would appear that in those jurisdictions the authorities have, for whatever reason, chosen not to speak to the FSB.
The FSB says it will continue to pursue dialogue and has tried a variety of channels in an attempt to get the jurisdictions concerned to engage with the process. The FSB goes on to state that: “other measures may be implemented to apply additional pressure”. However, it does not say what those measures might be or how the pressure will be applied. The FSB will publish a list of non-cooperative jurisdictions if positive measures are not seen to be making sufficient progress. The use of such name-and-shame lists is deemed to have been effective at incentivising improvements in other areas such as tax standards.
The implication for the FSB’s ability and intent to apply pressure as well as to name and shame increases the focus for jurisdictions, authorities and firms on its other streams of work.
G20 RECOMMENDATIONS
Asia regulators say G20 reform driven by U.S., Europe
By Daisy Ku and Rachel Armstrong
HONG KONG, Nov 29 (Reuters) – The lack of a unified Asian voice in the Group of 20 leading economies means the United States and Europe are driving the overhaul of global financial regulation with several of the new rules posing significant challenges for emerging markets, regulators said in a regional summit on Monday.
The G20 has endorsed a series of major reforms to banking and financial market regulation, which the five Asian members of the group and Financial Stability Board members Hong Kong and Singapore have signed up to.
But Asian regulators say a number of these rules pose significant difficulties for their markets, while others don’t address the way the crisis hit their economies. This, they say, is partly due to the fact that the United States and Europe find it easier to arrive at a common approach to regulatory change.
“There isn’t a uniquely Asian voice and I think that’s a challenge,” Martin Wheatley, head of Hong Kong’s Securities and Futures Commission (SFC), told the Pan-Asian Regulatory Summit held by Thomson Reuters unit Complinet.
New rules on banking liquidity, part of the so-called Basel III framework, were highlighted as one area where the reforms hadn’t taken into account the size of some emerging markets’ debt capital markets.
“Asian countries are facing significant challenges in meeting these liquidity standards,” said Lee Jang Yung, senior deputy governor of South Korea’s Financial Supervisory Service.
ANALYSIS-Implementation key to Basel III success
By Huw Jones
LONDON, Sept 12 (Reuters) – The global “Basel III” deal on bank capital standards was reached at lightning speed by usually glacial regulators — substantive negotiations took about a year, compared to a decade for the current Basel II rules.
But implementing the new standards consistently over the lengthy phase-in period will be a headache for national regulators, and determine whether Basel III succeeds better than its predecessor in reducing bank sector risk.
* The Basel III rules are much tougher than Basel II, which failed to ensure banks held enough capital to withstand the worst financial crisis since the Great Depression.
* Although Basel III more than triples the amount of top-quality capital that banks will have to hold in reserve, there are several potential pitfalls in timing and content that could undermine the reform’s effectiveness.
* The key aspects of the completed package will not all be phased in until the start of 2019, presenting a challenge for supervisors and their political masters to maintain momentum in their supervision of the sector. Lobbying by banks or an eventual return to boom times could blunt the will to enforce Basel III, as memories of the global credit crisis fade.
* The new capital conservation buffer of 2.5 percent, which is lower than some banks had feared, will not be fully in place until the start of 2019. At this time, the buffer plus the Tier 1 capital requirement will total 7 percent; in practice this is likely to become a solid floor for banks, because they will not want to face curbs on payouts such as bonuses, dividends and share buybacks. Falling below 7 percent could damage a bank’s reputation among investors and in the money markets.
ANALYSIS-Transaction taxes, liquidity and patience
By Mike Dolan
LONDON, Sept 8 (Reuters) – The case for a tax on global financial transactions may have been perversely boosted by the relative success of foreign exchange markets through the past three years of world banking turmoil.
As markets in credit, interbank and securities lending malfunctioned and stock markets lurched violently, currency markets, for the most part, appeared to have a “good crisis”.
ANALYSIS-China FX move only a minor aid to G20 rebalancing
By Brian Love
PARIS, June 21 (Reuters) – G20 leaders are likely to remain divided over how to balance the global economy at their summit in Canada this weekend, despite China’s decision to let its currency trade more freely.
Beijing’s abolition of the yuan’s 23-month-old peg against the U.S. dollar, announced on Saturday, may partially ease tensions at the meeting by clearing the way for appreciation of the Chinese currency in the long term.
FACTBOX-State of play on global bank levies pre-UK budget
June 21 (Reuters) – British Finance Minister George Osborne will unveil plans for an extra tax on banks to pay for bailouts on Tuesday as part of a budget expected to be the most austere in 30 years.
He has said the tax will be introduced regardless of whether other countries follow suit. The following is the state of play of plans elsewhere in the world to shield taxpayers from having to shore up banks again.
If Britain adopted a tax similar to the one touted in the United States, it would raise 3.5 billion to 5 billion pounds ($5.19 billion to $7.42 billion), analysts have estimated.
GROUP OF 20
The International Monetary Fund will present its final report on a possible bank tax to G20 leaders in Toronto this week but the group’s finance ministers agreed earlier this month not to pursue a uniform bank levy due to opposition from Canada, Brazil and Japan.
Instead, the G20 — whose members also include the United States, France, Germany and Britain — will agree the principle that banks should pay for their own bailouts in future, leaving the method up to each country.
Without a common levy, it would be hard for an individual country to impose a punitive tax as it could prompt banks to shift operations elsewhere.
COLUMN-G20 recipe for deflation, protectionism-James Saft
(James Saft is a Reuters columnist. The opinions expressed are his own)
By Jim Saft
HUNTSVILLE, Ala., June 8 (Reuters) – It may be folly or it may be prudence, but the move to fiscal austerity and restraint will be deflationary, will be bad for risky asset prices and will raise further the threat of protectionism.
The weekend’s meeting of the Group of 20 wealthy nations in Korea ended in a muddle of policies, with the final communique appearing to praise fiscal retrenching, expansionary policy, tighter regulation and slower implementation of that tighter regulation all at the same time, and all in the same impenetrable thicket of euphemism, buzzwords and consultant-speak.
To wit:
“The recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, growth-friendly measures, to deliver fiscal sustainability, differentiated for and tailored to national circumstances. Those countries with serious fiscal challenges need to accelerate the pace of consolidation. We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions. Within their capacity, countries will expand domestic sources of growth, while maintaining macroeconomic stability,” the communique issued at the conclusion of the meeting read.
For the perplexed, a gloss would be: “Europe having hit the fan, we can no longer agree on common policies to stimulate the wretched economy. Every man for himself! Well, except for the U.S., which should carry on buying all of the rest of our stuff.”
ANALYSIS-Next phase of financial crisis may be the hardest
By Emily Kaiser
WASHINGTON, May 21 (Reuters) – It took $5 trillion and an unprecedented global coalition of G20 countries to stabilize the economy after investment bank Lehman Brothers collapsed in 2008. Quelling the next phase of the financial crisis may be even harder.
To stop the panic that erupted nearly two years ago, governments transferred a mountain of debt from private to public accounts. Now, those government debts are distressing financial markets and there is nowhere left to shift the burden.
Europe’s clumsy response to Greece’s debt woes highlighted the economic and political headaches that await debt-laden countries and those who finance their borrowing.
European leaders have yet to convince investors that they have a credible short-term plan to contain government deficits and a long-term answer to the region’s slow growth. Until they do, financial markets will remain volatile, and the hard-fought economic recovery is in jeopardy.
“Europe is trying to solve a debt problem with further debt,” said Domenico Lombardi, president of the Oxford Institute for Economic Policy.
Fixing the problem will require money and political will. One cannot work without the other, and both are lacking.
A possibility is to have the financial sector and investors contributing to ease the burden these packages for financial stability have put on taxpayers by introducing transaction taxes. For example, Germany had such tax (1-2,5 promille per transaction, depending on type of transaction) until -91. Had this tax been in place today it would have generated 30 biljon €. The german deficit is this year 70-80 biljon €.
A tax like this will not majorly affect long-term investment required for economic growth, but will cool down rapid transactions with small margins (speculation). For the economy as a whole, it is better if the financial sector shares the burden in this way, than if some parts would carry the losses of defaults. The financial sector is expected to disagree and fight such solution with teeth and claw.
FACTBOX – Comparing EU and U.S. financial reform
LONDON, May 21 (Reuters) – The U.S. Senate approved a reform of Wall Street on Thursday and President Barack Obama may be signing into law the most sweeping changes to financial rules since the 1930s as soon as next month.
It implements pledges the United States, the European Union and other leading countries in the Group of Twenty made in 2009.
With the United States set to adopt its reform soon — and thus easily meet G20 deadlines — the EU has to play catch-up in some cases. Banks are watching carefully as transatlantic differences are emerging that will affect business models.
The following compares U.S. and EU reforms.
PREVENTING MORE TAX-FUNDED BAILOUTS
The G20 wants to end the belief among banks they are “too big to fail” by requiring resolution mechanisms and “living wills” for speedy windups that don’t destabilise markets.
The Senate sets up an “orderly liquidation” process.
ANALYSIS-Bank capital rules are regulatory drive’s top test
By Huw Jones
LONDON, May 4 (Reuters) – This month could bring overdue progress in a global drive to regulate the financial sector in the European Union and United States, but the acid test for policymakers will be agreeing global bank capital rules.
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Author Profile
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The absolute central element of the current bank regulations are capital requirements based on perceived risk of default of their clients. The lower the perceived risk is the lower the capital requirement, and, the higher the perceived risk, the higher the capital requirement.
As there has never ever been a bank crisis that has resulted from excessive investments or lending to what was perceived as “risky”, and they have ALL resulted either from fraudulent behavior or the excessive investment or lending to what was perceived as “not risky”, those regulations make no sense whatsoever.
They drive the banks excessively into “safe” sovereign and triple-As, and away from “risky” small businesses or entrepreneurs and who should most be served by the banks.
As long as the Financial Stability Board is not understanding and much less discussing this fundamental regulatory flaw, I do not give one iota about its capability of helping us to resolve this crisis, or to avoid the next. Capisce?
Per Kurowski
A former Executive Director at the World Bank (2002-2004)
http://subprimeregulations.blogspot.com/