Global finance chiefs told commercial banks at the weekend that resisting tighter regulation of the industry was futile, though bankers warned the reforms could hurt economic recovery.

U.S. Treasury Secretary Timothy Geithner said policymakers would introduce reforms carefully, but added that sweeping changes were needed and banks could not argue with that.

We're not going to adopt an approach that does stuff at the margin, and delays any changes that help preserve a bunch of practices that helped make this crisis much more damaging than it otherwise would have been, he said.

The Institute of International Finance (IIF), a group representing some of the world's biggest banks, met in Istanbul at the weekend alongside a conference of finance ministers and central bank chiefs of the Group of Seven rich nations.

In years past, the groups have tended to see eye-to-eye. But in the wake of the global financial crisis, they differed on how radically the banking industry should be reformed to reduce the risk of another crisis.

Last month, leaders of major economies agreed in principle to reforms that would restrict bankers' bonuses to avoid excessive risk-taking, require banks to keep more capital on hand as insurance against volatility in markets, and increase regulators' ability to monitor and intervene in the industry.

IIF chairman Josef Ackermann, who is chief executive of Deutsche Bank , complained that stricter regulation might be damaging if it was introduced too quickly or unevenly.

I believe there is a very real risk that as central banks and governments strive to avoid premature shifts away from supportive monetary and fiscal policies, regulatory reforms come into force that could undermine global recovery and job creation, he said.

The IIF said in a statement that the cumulative impact of multiple proposals to reform banks' capital, liquidity, leverage, underwriting and compensation needed to be assessed.

FRAGMENTATION

Ackermann also said some of the reforms so far had damaged the banking industry by making cross-border business more difficult.

Reforms should be internationally consistent and globally coordinated. Some of the measures taken have had adverse international effects resulting in a developing fragmentation of the global financial system.

But in their public comments, policymakers showed little sympathy.

Much of the crisis was caused by excessive, misperceived leverage and by perverse incentives, so we want a system with less leverage and more capital, said Mario Draghi, chairman of the Financial Stability Board, which is a policy coordinating arm for major nations.

I do think it is premature to be concerned by an excess of rules at this stage. I think we will have a financial system that is far more resilient than the one before.

Geithner said the risk of regulatory overkill in banking was far smaller than the threats to the stability of the world's financial system.

There is an overwhelming imperative that I don't think anyone who runs a financial institution can disagree with, that we got that balance wrong, that they got the balance wrong, and it's going to require sweeping changes, he said.

Policymakers and commercial bankers did sound in agreement in principle on the reform of bonuses, which have prompted public outrage during the crisis.

Banks support moves such as banning multi-year guaranteed bonuses, retaining the right to claw back pay, and awarding larger proportions of bonuses in the form of shares, said the IIF, which represents more than 375 financial firms.

It will absolutely have an impact, Ackermann said. But we are still performance-driven and are still in a competitive environment.

So it's important to ask ourselves whether compensation levels are socially and politically acceptable and in that sense there has been a rethinking of some of the key issues in the banking industry.

(Additional reporting by David Lawder and Anna Willard; Editing by Andrew Torchia)

Deutsche Bank Timothy geithner