Bank lobby group IIF slams capital top-up plans
Plans to saddle large banks with extra safeguards would make the financial system more unstable and could increase the number of too big to fail institutions, a leading bank lobby group warned on Monday.
Imposing simple capital surcharges is not the right way to strengthen systemic stability, said Frederic Oudea, chief executive of France's Societe Generale and a director of the Institute of International Finance (IIF).
Speaking after a meeting of the IIF's committee on regulatory capital, which Oudea chairs, he warned that singling out some banks as systemically important would create a two-tier market and not solve the issue of too big to fail lenders.
Global supervisors are hammering out a package of measures designed to make big, complex banks -- or systemically important financial institutions (SIFIs) -- safer and less of a burden to the taxpayer in case of future crises.
It could force them to hold an extra capital cushion, possibly of 2 percentage points.
There is a risk that this will create pressures for concentration and hence intensify the problem of 'too big to fail' rather than eliminating it, said Oudea in a statement after the IIF meeting.
We need to look at ways to increase the resilience and resolvability of these firms, he added.
The IIF represents more than 430 financial institutions including Deutsche Bank, HSBC, Citigroup, JPMorgan and UBS.
Separately, two top regulators said on Monday that a global deal this year on too big to fail banks was a tall order and failure might make more radical remedies more likely.
The timetable for measures such as capital surcharges and resolution mechanisms has slipped a year to the end of 2011.
Further delays may be inevitable as countries haggle over the finer detail of which big lenders should be affected.
This is extremely ambitious to do this year, Peter Praet, executive director of the Belgian National Bank, told a London School of Economics seminar.
ENDGAME NEEDED
Oudea called for a task force under the Group of Twenty (G20) countries' umbrella -- this year led by France -- to forge agreements on how to unwind failing banks with cross-border operations, or cross-border resolutions.
It should be possible to make progress if the political will exists, Oudea said.
But Praet, also member of the European Central Bank's banking supervision committee and of the global Basel Committee of bank supervisors, said resolution would be hard to achieve quickly which was why a multiple approach that included surcharges was needed.
The general mood is that proper crisis resolution for cross border institutions is impossible, it will take many many years, unfortunately, Praet said.
Thomas Huertas, who heads the UK Financial Services Authority's banking unit, said there was still no endgame for very large systemically important financial institutions, meaning they cannot be wound up easily without disrupting markets or requiring taxpayer help.
If 'too big to fail' cannot be resolved, then things will swing to a discussion on structure, Huertas told the LSE.
I hope we can avoid that. I hope we could have a sensible discussion. The easy identification of so-called casino banking with investment banking may not hold up, Huertas said.
Regulators have said such structural remedies could range from splitting up banks to ring fencing deposits or riskier operations
Huertas said bail-ins or use of hybrid debt that can convert into capital-boosting equity in times of trouble, had a great deal of promise and might help avoid structural remedies.
If I were a banker, I would work rather intensively on whether bails-ins can work, Huertas said.
A group of European academics said in a report on Monday that regulators had lost momentum over tackling too big to fail banks after backtracking from requiring all systemically important lenders to hold extra capital.
Focusing on the biggest banks first opens the door to more intense campaigning by banks, the group said.
The process is fading away. If you are labeled a global SIFI by a regulator and a close competitor in the domestic market is not, you will start lobbying your regulator, the group's chairman, Harald Benink said.
(Editing by David Holmes and Jane Merriman)
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