Bankers call for reworking of Basel III rules

LONDON Tue Jul 13, 2010 1:44pm BST

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LONDON (Reuters) - Planned global rules that will force banks to top up their capital and curb risk to avert a repeat of the financial crisis could choke growth and raise costs for consumers, top bankers said on Tuesday.

The Basel Committee of banking supervisors and central bankers meets in Switzerland on Wednesday and Thursday to start finalising its tough new bank capital and liquidity rules.

Stephen Green, chairman of HSBC (HSBA.L), Europe's biggest bank, told an annual meeting of the British Bankers' Association (BBA) that more discussion was needed about some of the specific proposals in the so-called Basel III reform.

Regulators must avoid "choking recovery" and plunging the real economy into a credit crunch, Green said.

"Governments and regulators need to calibrate carefully the various reform measures... it will take time for many banks to adapt to the new era," he said.

"Basel III has the unintended consequences of making trade finance more capital intensive for banks."

Bankers also questioned whether fragile markets could provide banks with the billions of dollars of fresh capital and liquidity they will need to meet tougher Basel III requirements.

"Specific capital deductions in a host of areas will push banks to restructure in ways that increase their risk profile," Gordon Nixon, president and chief executive of Royal Bank of Canada (RY.TO), said.

Basel III must be reworked so that national regulators have more discretion in applying the new rules, otherwise the reform will compromise economic growth and push up prices for customers, Nixon added.

WATCHING EUROPE

Green said banks must also engage more closely with the European Union, where financial rules that Britain must comply with are being made.

EU finance ministers met on Tuesday to finalise a sweeping reform of financial supervision in the 27-country bloc.

"We will surely have a new European banking authority. It may well have powers of intervention in domestic banking matters, at least in times of crisis... there remains the obvious risk that they will create rigidity, bureaucracy and further complexity rather than the converse," Green said.

The EU assembly has just approved some of the toughest curbs on bank bonuses in the world. The move has raised concerns among bankers that European banks will become less competitive should the United States and Asian countries not follow suit.

"The European Parliament's proposal on remuneration is a very clear example that raises issues of international cooperation. It's a broadly sensible proposal even if some important aspects are yet to be clarified," Green said.

BBA Chief Executive Angela Knight said the EU appears to be applying local requirements to an international industry and should be more concerned about the prospect of EU financial centres such as London losing significant business.

"Business moving, though, is not about a handful of pinstriped individuals heading for the jumbo jet at Heathrow to depart to Geneva, it is the potential shifting of significant business out of Europe to other jurisdictions where the attention must be," Knight said.

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