Don't rush on "systemically important" banks: Ackermann ?

NEW DELHI,Make Money Blogs, There should be no rush to impose additional capital safeguards on so-called systemically important financial institutions, said Deutsche Bank Chief Executive Josef Ackermann, who chairs an industry group, reinforcing perceptions that a global agreement may not be easy.

The veteran banker also warned, at a meeting of the Institute of International Finance, of the risks of regulatory arbitrage as officials in different countries move at different speeds and intensity to tighten rules.

"If you have different capital requirements in different parts of the world, if you have different liquidity provisions in parts of the world, different compensation structures in parts of the world, you will have an arbitrage opportunity between different regions," he said.

Last month, for example, curbs on bonuses took effect in the 27-country European Union bloc that go further than Group of 20 principles by setting in law specific limits for cash elements and periods for deferral.

The United States has been slower to impose new bonus standards, while major Asian financial centers such as Singapore and Hong Kong have moved to be in line with the G20's benchmark standards but gone no further.

At last month's Paris meeting of finance ministers from the G20 economies, leaders decided that the world's biggest banks must have higher capital safeguards.

Ministers at the G20 said banks whose failure may adversely affect the financial system have to hold higher loss-absorption capacity through means such as contingent capital or capital surcharge, but not every member of the G20 agrees.

In order to head off a repeat of the financial crisis that battered the global economy, banks will be subjected to tougher capital and liquidity standards under the Basel III rules set to be implemented from 2013.

The G20 aims to reach an agreement on extra safeguards for systemically important financial institutions (SIFIs) when they meet in November. If implemented, such banks would have to comply with requirements over and above imminent global norms for banks under the Basel III rules.

"We believe that there should be no rush to judgment regarding capital surcharges on such firms," Ackermann said, adding that there was still no clear definition for a SIFI.

FUNDING ADVANTAGE

Ackermann said heavier capital rules for such banks, and the perception that they may have bailout protections, could lower their funding costs, at the expense of smaller banks.

"What is the risk of having a dislocation of markets - that funding costs for the SIFIs are much lower than for others, and actually even availability of funds might be jeopardized for some smaller banks," he said.

Ackermann also said liquidity norms proposed in Basel III could erode the ability of banks to provide basic services.

Banks have until 2015 to meet new liquidity rules. A study by the Basel Committee on Banking Supervision showed banks would have had a 1.73 trillion euro shortfall of the assets needed to meet the new short-term liquidity rules at the end of 2009

"As currently formulated, the Basel liquidity proposals could undermine banks' ability to provide a range of basic services, such as back-up credit lines that are critical to corporations, as well as funding for businesses in international trade, and a range of retail borrowers," Ackermann said.

(Additional reporting by Devidutta Tripathy, Manoj Kumar and Abhijit Neogy in New Delhi & Rachel Armstrong in Singapore; Editing by Muralikumar Anantharaman)

source: reuters.com/

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