IMF warns global banking regulation needs more co-ordination
Wed Nov 3, 2010 10:00pm GMT
* IMF says investment banks may dodge new regulation
* Basel III liquidity rules may be hard for some banks to meet
By Rachel Armstrong
SINGAPORE, Nov 3 (Reuters) - Tough new banking rules may not be enough to prevent another financial crisis unless there is closer global co-ordination, the IMF warned on Wednesday.
Global banking supervisors agreed in September the so-called Basel III rules which set tough new requirements for bank capital and liquidity. The Financial Stability Board (FSB) is now working on additional measures for large banks whose failure would pose a serious risk to the wider financial system. [ID:nTOE69M00S]
But an IMF study of 62 "large complex financial institutions" warns that some investment banks are still likely to find a way to circumvent the myriad of new rules facing them.
"Banks with major investment banking focus may be able to restructure their activities to reduce the effects of regulatory reforms, notwithstanding a multitude of regulations affecting their activities," the IMF report said.
The IMF warns that some banks may be able to shift their activities into the less regulated "shadow banking" sector while others could relocate to countries with less onerous regimes.
"In some countries, the slow progress in reaching international consensus, combined with domestic policy concerns, have resulted in the adoption of national regulatory reform packages," the report said.
"This may encourage global banks that are active in various jurisdictions to consider moving their activities to minimise regulatory costs, affecting, in turn, the capacity to monitor and manage systemic risks,".
The FSB is co-ordinating the G20's efforts on improving financial regulation across the globe, and has just released a series of reports on reform of the derivatives market, credit rating agencies and improving overall supervision.
However, some countries have moved quicker than others to shake up their regulatory frameworks. The United States has already passed its tough Dodd-Frank Wall Street Reform rules, while regulators in Asia, where the financial crisis was much less severe, are taking a slower approach.
The IMF said this signalled a need for strong co-operation between national regulators to prevent banks trying to exploit differences between jurisdictions.
"The need for co-ordination of policies, as well as of their implementation, is greater than ever," it said.
On Basel III, the report said the rules on capital represent a "substantial improvement" and that most banks should be able to meet the new requirements through retaining more of their earnings rather than having to raise money on the open market.
But it did warn that the liquidity rules - which require banks to hold enough liquid assets to tide them through short-term shocks and less severe conditions in the medium to long term - may be tougher to meet.
"Some banks may face challenges in meeting the liquidity requirements in the current global environment," it said, pointing to the challenges of competition for money from government debt issuance and higher interest rates as central banks withdraw monetary policy support measures.
Wed Nov 3, 2010 10:00pm GMT
* IMF says investment banks may dodge new regulation
* Basel III liquidity rules may be hard for some banks to meet
By Rachel Armstrong
SINGAPORE, Nov 3 (Reuters) - Tough new banking rules may not be enough to prevent another financial crisis unless there is closer global co-ordination, the IMF warned on Wednesday.
Global banking supervisors agreed in September the so-called Basel III rules which set tough new requirements for bank capital and liquidity. The Financial Stability Board (FSB) is now working on additional measures for large banks whose failure would pose a serious risk to the wider financial system. [ID:nTOE69M00S]
But an IMF study of 62 "large complex financial institutions" warns that some investment banks are still likely to find a way to circumvent the myriad of new rules facing them.
"Banks with major investment banking focus may be able to restructure their activities to reduce the effects of regulatory reforms, notwithstanding a multitude of regulations affecting their activities," the IMF report said.
The IMF warns that some banks may be able to shift their activities into the less regulated "shadow banking" sector while others could relocate to countries with less onerous regimes.
"In some countries, the slow progress in reaching international consensus, combined with domestic policy concerns, have resulted in the adoption of national regulatory reform packages," the report said.
"This may encourage global banks that are active in various jurisdictions to consider moving their activities to minimise regulatory costs, affecting, in turn, the capacity to monitor and manage systemic risks,".
The FSB is co-ordinating the G20's efforts on improving financial regulation across the globe, and has just released a series of reports on reform of the derivatives market, credit rating agencies and improving overall supervision.
However, some countries have moved quicker than others to shake up their regulatory frameworks. The United States has already passed its tough Dodd-Frank Wall Street Reform rules, while regulators in Asia, where the financial crisis was much less severe, are taking a slower approach.
The IMF said this signalled a need for strong co-operation between national regulators to prevent banks trying to exploit differences between jurisdictions.
"The need for co-ordination of policies, as well as of their implementation, is greater than ever," it said.
On Basel III, the report said the rules on capital represent a "substantial improvement" and that most banks should be able to meet the new requirements through retaining more of their earnings rather than having to raise money on the open market.
But it did warn that the liquidity rules - which require banks to hold enough liquid assets to tide them through short-term shocks and less severe conditions in the medium to long term - may be tougher to meet.
"Some banks may face challenges in meeting the liquidity requirements in the current global environment," it said, pointing to the challenges of competition for money from government debt issuance and higher interest rates as central banks withdraw monetary policy support measures.