July 3, 2017 / 12:10 PM / 3 months ago

FSB's Carney warns G20 growth at risk from reform fatigue

Mark Carney, the chairman of the Financial Stability Board (FSB), leaves a news conference after FSB plenary session in Tokyo, Japan, March 31, 2016. REUTERS/Yuya Shino

LONDON (Reuters) - Global growth would suffer if regulators give into “reform fatigue” and fail to complete the overhaul of the world’s banking system triggered by the financial crisis, Financial Stability Board Chairman Mark Carney said on Monday.

The FSB coordinates financial regulations for the Group of 20 countries (G20) whose leaders meet in Germany this week. The FSB was formed during the crisis that began in 2007 but after an intensive decade of making rules some policymakers now want to prioritise growth over banking regulation.

U.S. President Donald Trump has said regulation is holding back lending and the U.S. Treasury has recommended delaying two measures that strengthen bank funding and require lenders to hold more capital for the securities on their trading books.

Carney, who is also the governor of the Bank of England, said in a letter to G20 leaders that there had been “immense progress” since the crisis in making banks safer.

“G20 reforms have now addressed the fault lines that caused the global financial crisis,” Carney told reporters.

Nascent risks remained that needed to be monitored, such as in asset management.

“In particular, giving into reform fatigue could erode the willingness of G20 members to rely on each other’s systems and institutions and, in the process, fragment pools of funding and liquidity,” Carney said.

He said that would mean “less and more expensive” financing for households and businesses, and lower economic growth would be “very likely”.

Working together through reinforced, voluntary international regulatory cooperation based on agreed global rules would help to avoid this, said Carney.

IMPACT REVIEW

The FSB has sought to keep members on board by reviewing new regulations and their impact. Carney said the review showed that higher resilience in the financial system has been achieved, “without impeding the supply of credit to the economy”.

The FSB will consider whether the leverage ratio, a broad measure of capital to assets, needs a rethink after banks say it stops them from offering derivatives clearing to customers.

Besides Washington’s misgivings about some reforms, regulators on the Basel Committee are also facing difficulties completing Basel III, a set of tougher capital rules for lenders worldwide.

France has said Basel III rules, still to be implemented, would force European lenders to find large amounts of extra capital but Carney called on G20 leaders to urgently help the Committee finish the job.

“I think a deal is possible,” Carney said.

Carney also said that toxic forms of so-called shadow banking - a sector that provides credit outside the banking system - have now been transformed into “resilient market-based finance”.

The central banker said once the rules already agreed for shadow banking had been fully implemented there would no need for any more to address existing risks - a conclusion the sector is likely to welcome.

The FSB will also convene a high-level roundtable to review whether there were unwarranted barriers that prevent remittance providers from accessing banking services.

There has been a decline in correspondent banking as global banks withdraw payments services from rivals in countries deemed at risk from money laundering or terrorism financing, making it harder for diaspora to send money back to their families.

A UK scheme to make managers at banks directly accountable for decisions could also be applied globally in some form to tackle misconduct, Carney said. The so-called senior managers regime was introduced in March last year, though some lenders have been skirting the new rules.

Editing by David Clarke and Toby Chopra

Our Standards:The Thomson Reuters Trust Principles.
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