LONDON (Reuters) - Myths from banks about regulation make it harder to coordinate rules internationally and lead to poor standard setting, a senior British financial policymaker said on Wednesday.
Robert Jenkins, a member of the Bank of England’s Financial Policy Committee (FPC), said banks and lobbyists propagate “false choices” such as regulators forcing banks to hold more capital means less money can be lent to the economy.
“This has produced sub-optimum reform and complicated international coordination,” Jenkins said in a speech to a closed audience at the International Centre for Financial Regulation in London on Tuesday and published Wednesday.
“In reality, one need not choose between better capitalised banks and economic growth,” said Jenkins who spent 16 years running bank trading rooms, including at Citibank, and 18 years at asset management firms.
The BoE will become Britain’s main banking regulator next year and the FPC sets the direction of supervisory policy.
Jenkins also criticised the “fixation” of banks with return on equity or ROE, a benchmark of profitability which has slumped from 20 percent or more pre-crisis to single figures in many cases.
ROE is the wrong measure and the wrong target as it took no real account of risks, though it was already being sharply revised downwards or de-emphasised as curbs on bank bonuses and other reforms start to bite, he added.
This month Barclays scrapped its ROE target of 13 percent, opting to deliver a return above the cost of capital of around 11.5 percent.
“Have you met a single banker who understands his cost of capital? I have not, though I should probably get out more,” Jenkins said, without singling out any lender.
Many western banks have yet to “come clean” to avoid revealing their fragility and “trigger the very equity issuance which they maintain to be unnecessary”.
Reporting by Huw Jones; Editing by Elaine Hardcastle