DAVOS, Switzerland (Reuters) - Following are highlights on financial regulation from sessions and interviews at the World Economic Forum in the Swiss resort of Davos on Wednesday.
“To tax the banks when they are doing everything they can to get out of a hole is the exact opposite of the policy you are trying to pursue....
“Some banks will spin off their investment banks and they will be very substantial and they will be too big to fail....
“There are investment banks that are too big to fail and they all now enjoy implicit guarantee. And to claim that the guarantee is not there is not credible. It will only become credible after a number of years when actually banks are allowed to fail.”
“The idea that banking is getting back to business as usual is a misunderstanding. Banking has fundamentally changed
“There is an acceptance that things will have to continue to change.”
LORD LEVENE, CHAIRMAN, LLOYDS “We will have internationally coordinated regulation... But you can’t just regulate. The answer has to rest with the industry. Industry has to deal with itself because that’s where we are going to get a recovery.
“Let’s get good regulation, better regulation, but not more regulation.”
“You have to ask yourself is regulation up to it? We have seen the failure of a couple of large banks...in those cases it was clear, there was ineffective regulation and ineffective management.
“I have seen no evidence ... that shrinking banks is the answer.
“If you step back and say too big is bad ... the impact of that on global trade, on the economy, could be very negative.”
“We have elections in the UK, we have elections in the U.S.
“Elections are by nature national, they are not global ... This is a time when isolated actions in the U.S. and UK are not beneficial.”
“Without risk we do not have a banking industry ... having banks willing to take risks, particular cross-border risk is essential to economics.”
“It’s (financial sector) still very fragile. Balance mismatching is still a big issue. Obviously more regulation is deserved.”
“The reality is that banks are already split up among those that make more trading — the investment banks — and those with activities more based on deposits and lending. To look at how to reward those banks that do very little prop trading, and have therefore not a very volatile income statement, is a very good objective.
“If we manage to reward, for instance with lower capital ratios, the banks that have stronger commercial activities and less trading activities, I believe that in the end we will be able to channel more resources into the real economy.”
CHARLES DALLARA, HEAD OF INSTITUTE OF INTERNATIONAL FINANCE
“We do share the basic concern to moderate excessive risk taking in financial institutions and deal with the too big to fail problem. The question is how best to do it....
“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....
“We need a global harmonization of the new framework and that is what we have been working on here with extensive discussions in the Basel committee, with constructive dialogue with the financial stability board.”
“There is a big issue as to whether you can really distinguish the market-making function of large, complex institutions from proprietary trading. But this proposal ... is a response also to a perceived effort on the part of the banking community to go back to business as usual.”
“The kind of model where the parent banks have subsidiaries across the world and these are subject to local regulations and there is not a centralized model, is one that works. Because as long as you don’t have a global regulator, a global lender of last resort, or a global taxpayer, this is the kind of model which did work and should be the blueprint for the future.”
“There needs to be financial institution reform — the issue is whose ideas should be prevailing...
“It should be global if at all possible and that if you get the architecture and the engineering of the financial system correct then it will deal with the vast majority of issues. Straying from that kind of approach may have some popularity or even transient appeal but probably is not as sound and integrated an approach as is being done currently by the professionals in this field.”
“There will always be national differences. Areas where regulation was a little bit more strict has not worked badly for these countries... The idea that those countries which are more strict or will be at a disadvantage, I’m not convinced....
“Regulators are very conscious that there is a balance between quality of management and regulation.
“Regulation is a very important part of the solution, but there is an important part that comes from the private sector — and it is really that — quality of management.
“We are trying to provide through regulation some of the incentives. Certainly the objective is not to constrain management... but to make them realize that sometimes incentives are not appropriate.”