The banking industry is stepping up its attack against tougher financial regulation that it claims is choking off the economic recovery in light of the ongoing eurozone crisis. “The financial sector continues to be beaten round the head with new, mad regulations, and the global economy is suffering,” Philip Suttle, deputy managing director of the Institute for International Finance (IIF), a bank lobby group, told Emerging Markets.
Citing continental Europe’s support for a new tax on financial transactions, uncertainty over the US’s Dodd-Frank rules, and extra capital surcharges for globally systemically important institutions (G-Sifis), he said bank regulations needed to be retooled in order to allow eurozone banks, in particular, to disburse credit.
His comments came as UK finance minister George Osborne stunned his EU counterparts in Brussels by refusing to sign up to watered-down Basel III rules that would make him “look like an idiot”.
While the IIF remains largely supportive of the original Basel timetable to implement core capital requirements by 2019, market pressures on banks to accelerate the adoption of these rules and a flurry of different banking reform timetables and capital definitions have served to undermine market confidence and thereby choked credit supply, Suttle said.
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| Philip Suttle, IIF |
Citing the allure of Australia’s committed liquidity facility, which allows banks to swap a broad pool of illiquid securities in return for liquid assets at the central bank for a fee, Suttle said: “This approach should be considered rather than a bank liquidity regime that relies on the madness of forcing banks to buy up dangerous sovereign bonds”.
Although the IIF supported the principle of the so-called bail-in approach – giving regulators the authority to force banks to recapitalize using private capital from within the bank rather than public money – “there is a huge problem of implementing this in the current environment” without ramping up banks’ funding costs and lending rates, he said.
He said IIF warnings in 2010 that there was an inevitable trade-off between economic growth and new financial rules were vindicated by the slew of weak economic data in 2011.
“We were ridiculed at the time but unfortunately it would appear our calls were more accurate than the central banks.” He reckons that financial regulations will wipe off 0.7 % off the annual average growth rate in Basel economies.
Asked whether his comments could be seen as self-serving in his role at the bank lobby group, widely seen as resistant to change, he said: “We can’t afford to be the guy that does not deliver the message.
“If regulators had done their job six or seven years ago, we would not be in this mess. Now we are. The challenge is to support the global economy rather than bash about the financial sector.”
The emerging global bank regulatory framework is one hurdle that will challenge Asian banks to compensate for the reduced credit supply in the region from European banks, Ritesh Maheshwari, S&P financial services analyst for the Asia-Pacific region, told Emerging Markets.
This article was originally published by Euromoney’s sister publication, Emerging Markets