The banking industry’s headline-grabbing claims that plans for tougher financial regulation would impose huge costs have been dismissed as "questionable" by a leading central bank governor.
Mark Carney, the Canadian monetary chief who also chairs a committee of the Bank of International Settlements (BIS), questioned the argument that an overhaul of regulation would mean lower growth and fewer jobs.
Global economic uncertainty was no reason to delay financial regulatory reform, he told bankers gathered for the annual meeting of the Institute of International Finance (IIF) in Washington on Sunday.
But Josef Ackermann, chairman of the IIF and of Deutsche Bank, reiterated his warnings that the array of different timetables and definitions being used by regulators worldwide was causing "massive distortions" that could wipe 3% off global growth by 2015.
The disagreement comes six weeks ahead of the summit of leaders of the G20 countries in Cannes that is expected finally to approve a broad regulatory framework drafted by the Financial Stability Board under the auspices of the Bank of International Settlements.
Carney used his keynote speech to the IIF to rebut the institute’s argument that regulatory reform would undermine economic recovery unless implementation of Basel III, which calls for higher capital requirements for banks, was delayed.
"It is hard to see how backsliding would help," he said. "Indeed, at a time when the conviction of policymakers across a range of issues is being called into question, there appears to be little value in feeding this concern."
He said the IIF’s assessment of the cumulative impact of regulatory reform, released earlier this month, had failed to include the benefits of regulation, which he said the Bank of Canada had estimated at $13 trillion for the G20 economies.
"It is hard to see how more capital, better liquidity and stronger infrastructure would lead to such a result," he said.
His view was echoed by Andrea Enria, the head of the newly-formed European Banking Authority, who said the banks should focus on implementing Basel III rather than arguing over its merits.
"Basel III has been approved and we now have to move to implementation," he told the IIF. "Our commitment is to have a very precise, effective and consistent implementation.
"From the industry side, there needs to be some recognition that some decisions have been taken and the only point that is a matter of concern is how get there."
Ackermann said there was a "danger" that the ability of the financial industry to provide finance to governments and to enterprises was being "severely hampered" by uncertainty over regulation.
"Our hope now rest on the G20 to step forward and act decisively to ensure that it will be fully restored," he said.
While the IIF supports the original timetable to implement core capital requirements by 2019, it accuses regulators of adding extra layers such as surcharges for globally systemically important institutions (G-Sifis) and for allowing regulators to implement the rules at different speeds.
"The proposals [on G-Sifis] might not only add to moral hazard and increase risk, but right now the critical concern is that they may be particularly damaging given the fragility of financial markets and the serious condition of the world economy," Ackermann said.
Several bankers voiced their concerns. Gary Cohn, president of Goldman Sachs, said there was a danger that regulated banks would lose out to the unregulated shadow banking system. "The regulators’ solution has been to put more and more capital into the regulated banks.
"Traditional banking lending books continue to get smaller and smaller while the debt capital markets continue to get bigger and bigger. Banks need to charge substantially higher rates than other unregulated providers."
Peter Sands, CEO of Standard Chartered, said the national fragmentation of regulation had implications for international capital markets and trade finance.
"The extent to which this imposes costs on moving money around the world will have an impact on the way that capital flows around the world and how trade happens.
"We have already seen that, frankly, in the unintended consequences of the impact of Basel III on trade finance. That game hasn’t played out yet."
Rick Waugh, CEO of Scotiabank said people needed to recognize the reforms put in place by banks since 2007. "Banks have made significant progress on liquidity, risk management and improving the quality of assets."