European Union and Asian regulatory sources said that a system of international regulatory cooperation will be thrown into confusion by U.S. plans to delay globally-agreed reforms to make banks safer after the financial crisis.
But sources said that as it will allow them to cut back on how much expensive capital they must hold to support their business, the rollback will be welcomed by global banks.
In order to increase cooperation between regulators following the collapse of Lehman Brothers in 2008, watchdogs around the world have been working via the G20 group of leading economies since the financial crisis.
But, in a 150-page report that suggested more than 100 changes, the U.S. Treasury unveiled plans on Monday to upend the country’s financial regulatory framework.
“Trump’s proposals are going in the wrong direction,” Jakob von Weizsaecker, a German Social Democrat in the European Parliament’s economic and monetary affairs committee, said. “In Europe, we must be careful not to forget the lessons of the financial crisis. It would be a huge mistake for us to follow the U.S. lead on this.”
A globally agreed rule on bank liquidity which requires banks to cover long term funding needs, is to be implemented from January 2018 and the U.S. Treasury has called for a delay in that implementation.
A fundamental review of banks’ trading books, which was also agreed globally through the Basel Committee of international regulators, is also wanted to be delayed by the U.S. Treasury.
In order to cover risks from stocks, bonds and other instruments kept in their trading businesses, this trading book review represented a major overhaul of how banks set aside capital.
New capital and liquidity requirements to existing rules banks have to follow, would have been added by these two rules, the U.S. Treasury said.
In order to implement these pieces of regulation, the European Union has already proposed a draft law.
The Treasury’s lengthy proposals would be studied in detail, Valdis Dombrovskis, the EU’s financial services chief, said.
“It must be noted that we need to follow what the developments will actually be, whether those recommendations will really be taken on board,” Dombrovskis told reporters.
An EU source raised question marks about regulation and said the recommendations were “a bit worrying”.
Some watchdogs in their region would be led to review their implementation timelines by the U.S. Treasury’s position, Asia-based regulatory experts said. The West’s post-crisis reform agenda imposed on them has already made them unhappy.
“This is going to create level-playing field problems, and concerns for global banks when dealing with fragmented regulatory regimes in the region,” Kevin Nixon, global & APAC lead, center for regulatory strategy at Deloitte in Sydney, said.
Keith Pogson, senior partner, Asia Pacific financial services at EY in Hong Kong, said, generally be a boon for global banks operating in the region would be any rollback on the fundamental review of banks’ trading books by Asian regulators.
A mechanism for winding down failed banks would also be reviewed by the U.S. Treasury.
“Depending on how the review is implemented, it can create quite a lot of trouble for cooperation between supervisors,” the EU source said. “We are looking at this with quite a bit of potential concern. It could jeopardize the whole international cooperation on resolution of banks.”
Including measures like scaling back on “gold plating” of globally agreed rules, many of the other reforms proposed by the U.S. Treasury are domestic.
(Adapted from Reuters)
Categories: Economy & Finance