Tougher bank rules set for patchy global start

LONDON (Reuters): Many countries will not be ready by January to enforce new banking rules that form the world’s regulatory response to the financial crisis, a global supervisory body said on Monday.

World leaders from the G20 economies approved the Basel III rules in November 2010 after their taxpayers had to shore up under-capitalised lenders in the 2007/09 credit crunch.

“It is clear that not all jurisdictions will be ready in time,” said Stefan Ingves, Chairman of the Basel Committee on Banking Supervision, which wrote the new rules. It is the first official recognition that a unified global start to a regime that forces banks to hold three times the previous minimum level of core capital is now off the cards.

The Basel rules are being phased in over six years from January and will require banks to have a core Tier 1 capital ratio equivalent to seven per cent of their riskier assets.

With 12 weeks to go, the committee – comprising central bankers and supervisors from the G20 countries and elsewhere – said that only seven of its 28 member countries have made the Basel III rules legally binding: Japan, Australia, China, India, Saudi Arabia, Singapore and Switzerland.

Turkey and Argentina have yet to draft proposals, while the United States and the European Union, which contain most of the world’s banking assets, are still at the drafting stage.

The European Union is bogged down in internal disagreements and last week the committee slammed the bloc for trying to water down its rules.

Compounding the sense of unease, the Bank of England’s financial stability director, Andrew Haldane, has said that Basel III is too complicated. Thomas Hoenig, a director at the Federal Deposit Insurance Corporation, an agency that oversees some US banks, wants his country to reject the new rules unless they are simplified. Another key G20 deadline will also slip.

A pledge by the world leaders to require derivatives contracts to be cleared and recorded centrally from December 31 will be phased in over time because capital rules are not ready. US and EU supervisors are also trying to iron out differences in their approaches.

The Financial Stability Board (FSB), the G20’s regulatory task force, meets in Tokyo on Thursday to help to keep up momentum for implementation of the new rules.

“It is essential that all jurisdictions continue to press ahead and finalise regulations by the deadline or as soon as possible thereafter,” said Ingves, also an FSB member and governor of Sweden’s central bank.

A source familiar with the G20 work said that comments from Haldane and Hoenig were having no serious impact and that a delay of a few months in the formal implementation of new rules “won’t be the end of the world.”

“The things that matter to us is that the financial institutions are moving to put Basel in place and they are moving to clean up the quality of capital and build additional buffers,” the source said.

Few expect any formal delay in Basel’s bank capital rules, but an easing is being finalised for the accord’s rules for new bank liquidity or cash-like buffers that come in from 2015. Market and regulatory pressures have already forced top banks to hold capital at or well above the new Basel III minimum, which won’t formally take full effect until the start of 2019.

In many cases market infrastructure, such as clearing houses, was well ahead of the derivatives rules, the source added.

This week FSB Chairman Mark Carney, also governor of Canada’s central bank, will be keen to show that G20 appetite for reform is undimmed as he puts the finishing touches to a welter of draft rules to supervise so-called shadow banks.

In effect this would be a parallel system covering credit handled outside traditional banks, such as money market funds, special investment vehicles, hedge funds and repurchase agreements.

Regulators worry that as banks become more regulated, risky activities could migrate to the shadow banking sector. The FSB’s drafts will be presented to G20 leaders next month.

The board will also review the number of big banks, such as Goldman Sachs and Deutsche Bank, that face a capital surcharge of between 1 per cent and 2.5 per cent  on top of the Basel III 7 per cent  minimum because of their size and complexity.