Business chiefs warn on financial reform dangers
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Business chiefs warn on financial reform dangers

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The proposed financial regulatory reform agenda risks undermining attempts to boost the real economy, leading business figures warn

Politicians and bureaucrats driving the financial regulatory reform agenda are charting a “very, very dangerous” course, the head of one of the world’s largest insurance groups said yesterday.

Michael Diekmann, chairman of Allianz, the German insurer, said that a daily flow of letters between business organisations and regulatory bodies was having no impact in terms of preventing reforms having unintended harmful impacts on banks.

His criticism was echoed by other leading bankers speaking at the meeting of the B20 group of businesses.

Diekmann said: “We have leading associations sending letters every day to the G20 and the Financial Stability Board and everyone ... sees that there’s an unintended impact on the economy, but somehow the auto pilot is on the move.

“I am really wondering what we are going to do instead to get politicians to understand that they are driving a very, very dangerous course that will not support growth or the building up of jobs.”

Banks have warned G20 leaders this week that the way their proposals on tightening the rules on banks’ capital reserves are being implemented is creating financial instability, at a time when bank lending is vital to building an economic recovery.

Peter Sands, chief executive of Standard Chartered bank, said regulators needed to strike a better balance between the measures needed to deliver financial stability and their impact on growth.

“The world economy is in a fragile state, confidence is fragile and there is a risk that further measures will undermine economic growth, and make it more difficult for financial institutions to play their role of supporting companies [to] grow and invest,” he said.

“The measures may indeed fuel deleveraging, have unintended consequences and create new risks to financial stability. There is a real danger of having a self-reinforcing cycle on the deleveraging side, depressing asset prices. The dynamics of that are very unpredictable and very difficult.”

The potential impact on the real economy from a lending drought was highlighted by s stark warning by Louis Gallois, the chief executive of EADS, the European aerospace giant and maker of Airbus aircraft.

“We are not talking about a credit crunch, but in France and Germany our suppliers are finding [it difficult] to finance their working capital,” he said. “Our customers, the airlines, are finding more and more difficulty finding finance for airplanes.

“We are clearly evaluating if it is due to the crisis or due to the new regulation. In any case, we consider that there is no clear answer to the question of how the economy will be financed in the future.”

Alfredo Sáenz, chief executive of Banco Santander of Spain, said regulators needed to adopt a “multi-paced approach” involving both micro- and macro-prudential regulation to deliver financial stability.

“We have to be careful that by preventing another crisis from happening, [we] do not hamper our ability to recover from the current crisis. We must be careful that the measures do not upset existing sources of financing that could disrupt credit supply.”

He said it was “indispensible” that regulators took a “cautious and progressive” approach. He added: “It is vital that national measures are consistent with international principles, otherwise there is a serious risk of significant fragmentation.”

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