LONDON, Feb 8 (Reuters) - Global banking rules should focus only on cross-border banks to avoid burdening local lenders and help reduce populist backlash against globalisation, Bundesbank board member Andreas Dombret said on Thursday.
Dombret is Germany’s representative on the Basel Committee, which finally completed in December its global capital rules for banks, aimed at avoiding a repeat of the 2007-09 financial crisis that forced taxpayers to bail out lenders.
“We ought to focus on truly global aspects, like regulating globally active banks, while leaving it to nation states to carry out those tasks that they are better placed to take care of, such as the regulation of locally active banks,” Dombret said.
“You could call this ‘globalisation on a leash’. I prefer the expression ‘focused harmonisation’,” Dombret told an audience at the London School of Economics.
The EU has generally applied Basel’s rules to all lenders, but Dombret said that the single market has “gone too far” in some areas, without elaborating.
U.S. President Donald Trump has already ordered American regulators to ease back on some globally-agreed financial rules to encourage more lending.
Dombret’s comments contrast with those from Bank of England Governor Mark Carney and UK Financial Conduct Authority Chief Executive Andrew Bailey who have called for a greater emphasis on global financial rules in future - an area Britain could still influence after it leaves the EU next year.
Pushing for a fully integrated global market with widely harmonised rules would erode democratic accountability, according to Dombret.
“However, democracy is not on the table, and I think it is fair to say that Brexit and the rise of populism have taught us that our societies are not ready to renounce national sovereignty,” Dombret said.
Dombret said banks in London face little choice but to apply for licences in the EU if they want to continue doing business there after Brexit - with a potential upside for Britain.
“While this might increase transaction costs in some cases, it may bring the benefit of enabling the EU and the UK to set their own rules in an important area of economic policy,” Dombret said.
“And as important as efficiency is, the ability to find national solutions, national rules to stabilise the social contract, is more important for social cohesion than economic efficiency.”
Pro-Brexit lawmakers want Britain to ditch many EU financial rules to keep London competitive as a global financial centre, but Dombret said relaxing regulatory standards as an instrument of economic policy is not an option.
“Competitive deregulation through tax or supervisory policy would erode the foundation of our future cooperation,” Dombret said. (Reporting by Huw Jones; Editing by Elaine Hardcastle)