G20 to delay tough bank regulations

G20 to delay tough bank regulations
By Chris Giles in Busan
Copyright The Financial Times Limited 2010
Published: June 4 2010 12:59 | Last updated: June 4 2010 15:14
http://www.ft.com/cms/s/0/17d4ae9e-6fcb-11df-8fcf-00144feabdc0.html


Group of 20 finance ministers are set to delay the implementation of tougher regulations for the world’s banks as splits emerge over the scope of the new regulations.

Officials and ministers from the G20 group of industrialised nations, meeting in Busan, South Korea, acknowledged there were still big differences on the “Basel III” proposals that are due to be finalised by November. The disagreements cover the scale, scope and timing of the increases in capital and liquidity banks will be required to hold, as well as the leverage they will be allowed.

In response to the splits, the UK and the US are offering to delay the implementation of the Basel reforms in a bid to ensure that the principles do not get watered down.

Speaking on the sidelines of the G20 finance ministers meeting, George Osborne, the UK chancellor of the exchequer, said: “One of the things I will be pressing for is that the agreements that were reached last year on capital, leverage and liquidity are now concluded. We want an end to the uncertainty.”

An aide to the chancellor said the UK was adamant that there needed to be no dilution of the principle that common equity should form the basis of new capital rules and other forms of hybrid capital should not be allowed to count, under those new rules, as being the same.

But the aide added that if this was agreed, it would be possible to have a discussion over the transition period before banks were required to meet the new standards.

The UK’s position chimes with that of the US and Canada. Jim Flaherty, Canadian Finance minister, said: “Some would like a shorter period [of transition], some would like a longer period. I think that can be worked out over time”.

On Wednesday, Tim Geithner, US Treasury secretary, said: “It is perfectly reasonable to use transition periods to make it easier for countries to adjust to what we believe should be a substantially more demanding, more ambitious set of constraints on leverage”.

Christine Lagarde, French finance minister, denied that France is trying to delay the process and said she hoped the reforms would be completed on schedule. But hinting at the disagreements on issues of substance on the definition of capital, she added: “We have to do a quality technical appraisal on the subject that is too complicated to be rushed through.”

Some G20 officials privately complain that France and Germany are seeking to reopen arguments thought to be settled last year in a bid to dilute capital requirements for their banks by allowing them to include deferred tax assets and minority interests in tier one capital.

The Basel rules were originally expected to be phased in by the end of 2012, but sources familiar with the discussions said that the latest idea was that the new rules were likely to be put in place between 2014 and 2016.

Another G20 source said that the transition period did not matter much because once the new regulations were agreed, banks would come under enormous pressure to meet them quickly or explain why they could not, even if the formal transition was much longer.

The new rules were always going to be phased in and Nout Wellink, chairman of the Basel Committee on Banking Supervision, told the Financial Times last month that a longer-phase-in period might be needed to minimise disruption.

Banks are actively preparing to launch a large lobbying effort in the coming week to press their case for less stringent regulations, arguing that great economic harm would result from too stringent rules.

The banks’ analysis is not accepted by regulators with Stephen Cecchetti, the chief economist of the Bank for International Settlements, telling the FT last week that their “doomsday scenarios” were based on their assuming “the maximum impact of the maximum change with the minimum behavioural change”.

The splits within advanced countries about capital and liquidity requirements is repeated in the discussions over new levies on banks, which have been pushed back for lack of a consensus.

More countries are joining Canada in its rejection of the idea of a banking levy. Pranab Mukherjee, India’s finance minister, said: “Regulated mechanisms instead of taxing the banking system is better.”

Additional reporting by Christian Oliver in Busan