Regulators not swayed by bank capital complaints

Sun Sep 25, 2011 5:04pm EDT
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By Dave Clarke

WASHINGTON (Reuters) - Global banks aggressive push to scale back or postpone new capital rules for the world's largest banks is being met with little sympathy from international regulators who are set to finalize these standards in the coming weeks.

At events across Washington this weekend, set to coincide with meetings of the International Monetary Fund and World Bank, several regulators made clear they believe higher capital standards for large banks are key to making the financial system more stable.

Many regulators sought to push back against specific arguments being put forward by banks.

For instance, banks and their lobbying groups contend the capital standards, agreed to as part of the Basel III agreement, will cause banks to lend less and hurt the economy at a time when recession worries are troubling world markets.

"While the worsening global economic outlook has implications for bank performance, it does not provide a rationale for delaying the implementation of Basel III," Bank of Canada Governor Mark Carney told the annual meeting of the Institute of International Finance (IIF), a bank lobbying group, on Sunday.

New York Federal Reserve Bank President William Dudley made clear he is unmoved by the argument that it is difficult to determine all the banks that are systemically important, or SIFI's, and who would have to meet the additional capital surcharge.

"I appreciate that it is impossible to calibrate 'SIFIness' precisely, but this is not a valid argument for no surcharge," Dudley said at an event sponsored by the Bretton Woods Committee on September 23.

"The logic behind the SIFI surcharge is that the failure of a systemically important institution would generate a very large shock to the rest of the financial system," Dudley added. "As a consequence, it makes sense to require higher capital for such firms to reduce their probability of failure."   Continued...