Don’t impose new capital rules too fast, banks warn
GlobalMarkets, is part of the Delinian Group, DELINIAN (GLOBALCAPITAL) LIMITED, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 15236213
Copyright © DELINIAN (GLOBALCAPITAL) LIMITED and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement
Emerging Markets

Don’t impose new capital rules too fast, banks warn

Market pressures on banks to accelerate the adoption of new capital rules could undermine growth in the near term, senior financial executives have warned

“The single biggest threat is that markets demand banks to accelerate the calendar of capital-raising,” Herbert Stepic, head of Raiffeisen International, told Emerging Markets.

The upcoming Basel III requirements will force banks to hold top-quality capital equal to 7% of their assets – more than three times the level currently required.

The Basel III capital levels are lower than was feared earlier this year, and lenders will have until 2019 to comply with many of the rules, leading to criticisms that the rules are too soft and banks are still dangerously under-capitalized.

The IMF raised the alarm over mountain of bank debt coming due in its semi-annual Global Financial Stability Report, published on Tuesday. It estimated that $4 trillion of bank debt needs to be refinanced in the next 24 months. “Some banks will make a competitive judgement” to front-loaded their capital-raising efforts, said Mark Carney, governor of the Bank of Canada.

The flood of debt issuance could prolong European Central Bank and US Federal Reserve’s monetary easing policies. The projected downsizing of Western bank balance sheets in the coming years will not only be driven by new regulations but to the deleveraging of households, said Carney.

Policymakers have to accept that there is a short-run “trade-off between economic growth” and achieving financial “stability”, Peter Sands, chief executive at Standard Chartered, said, at a panel discussion at the Institute for International Finance’s annual meeting.

Marcus Wallenburg, chairman of Sweden’s SEB, argued bank supervisors are still running the risk of choking off the economic recovery through tough bank capital rules. “There is a risk that these measures that we implement will have indirect effects in the way they structure assets going forward, including how to refigure deposit and liquidity rates.”

Sands at Standard Chartered criticized the trade finance regulation in the upcoming Basel III rules, which imposes higher capital charges on the business. He said this has a disproportionate impact on emerging markets that are dependent on bank finance for turbocharging small and medium-sized enterprises.

The Basel III process imposes a “one-size-fits-all policy on emerging markets that could damage them,” Barbara Ridpath, chief executive officer at the International Centre for Financial Regulation, told Emerging Markets earlier this week.

Financial infrastructures are at relatively different stages of development, their supervisory structures and culture, she said. In countries with small equity and bond markets and high growth rates imposing higher capital requirements could damage them.

In addition, the higher costs of regulation create a high barrier of entry for financial services firms at a time when emerging markets are developing their financial system. As a result, emerging market banks could be less inclined to develop riskier products, such as derivatives.

Gift this article