DAVOS, Switzerland (Reuters) - Top bankers took a swipe on Wednesday at U.S. and British moves to tighten regulation of their activities and pay, saying one set of rules were needed to govern the global banking industry.
The Group of 20 leading nations have attempted to address the financial crisis through a common global approach, but policymakers came under fire from the industry’s leaders for potentially storing up problems for the future.
“We collectively underestimate the cost of complexity,” Peter Sands, Chief Executive of Asia-focused bank Standard Chartered, told the World Economic Forum.
“If we all do slightly different variants of everything ... in every country in the world, it will create enormous amounts of complexity and the visibility of bank management and regulators ... will be impeded.”
Regulators welcomed plans by U.S. President Barack Obama to curb banks’ proprietary trading risks, with Bundesbank President Axel Weber lending cautious support.
“We need to limit activity. We need to have more capital held against riskier activities,” he said, while indicating the U.S. approach would not get wholesale backing in Europe.
But Barclays President Bob Diamond said moves by British and U.S. authorities — including a UK tax on bank bonuses and a U.S. clampdown on big banks’ activities — could threaten supranational solutions.
He also noted domestic political imperatives coming to the fore. Both the UK and U.S. governments face the ballot box this year.
“This is a time when isolated actions in the United States and the UK are not beneficial,” Diamond said, addressing an audience of business leaders and executives in the Swiss resort of Davos. “(There is the) opportunity to work constructively through the G20.”
Deutsche Bank’s Josef Ackermann agreed: “We are in a global financial market and we need a level playing-field. It would not be productive to have different regulatory frameworks.”
Diamond also warned moves to limit the size of banks — including U.S. President Barack Obama’s moves to limit some banks’ most lucrative operations — would not create stability.
“I’ve seen no evidence that suggests that shrinking banks and making all banks smaller or more narrow is the answer,” he said. “If you step back and say large is bad, and we move to narrow banking, the impact of that on banks and on global trade, the global economy, would be very negative.”
He warned it would be extremely complex to separate the risks banks take to carry out proprietary trading and those taken simply to conduct routine business for clients.
Obama’s proposals, which require Congress approval, would prevent banks from owning or sponsoring a hedge fund or private equity fund. He has also called for a cap on banks’ size.
Jaime Caruana, the head of the Bank for International Settlement, which is trying to push through new global financial standards, also acknowledged the need for greater international cooperation in shaping up new rules for banks.
However, he also said individual countries were free to use a certain degree of flexibility and said he was “not convinced” that countries with tougher financial rules would be at a disadvantage.
Charles Dallara, head of the Institute for International Finance, a lobby group for big global banks, said Obama’s proposal merited debate but may not achieve its goal, especially if Washington took a unilateral approach to regulation.
“While we respect the right of any government to propose whatever measures it may deem needed in its market, it’s not going to be effective at all to have one set of rules in the U.S. and one in Europe and one in the UK and one in Japan and one in Canada,” he told Reuters.
Editing by Mike Peacock