“At the Basel Committee, where a lot of the rule making takes place, I see still an ability to reach consensus and to sing from the same hymn book,” Julie Dickson, Canada’s top banking regulator, said in Toronto Monday.
From the outset, academic experts warned that history shows that the bank lobby will attempt to water down new rule changes. They called on officials to act quickly, saying that as memories of the crisis fade, so will the energy to write new rules. “The longer we are from the 2008 crisis, the larger the resistance there is to reform,” said Eric Helleiner, who studies financial regulation at the Waterloo, Ont.-based Centre for International Governance Innovation.
Mr. Helleiner said the G20 “principles” are right, but he’s critical of the execution. Financial institutions will get a decade to comply with tougher standards, a window that Mr. Helleiner says is too generous. Mr. Goldstein also said that banks are being given too long to build up their capital buffers, but was less critical of the G20’s overall performance. “I give them a B or so,” Mr. Goldstein said. “It’s better than what we had before.”
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What’s at stake
A look at some of the proposed new regulations:
The G-SIFI surcharge
Regulators want to impose a capital surcharge on global systemically-important financial institutions (G-SIFIs – essentially, the largest and most interconnected banks). The idea is that a collapse of one of these banks would be more disruptive to the world economy than the failure of a smaller bank, so G-SIFIs should have to be more cautious. The surcharge would require G-SIFIs capital levels to be up to 2.5 percentage points higher than smaller banks.
Tougher capital rules
Under the Basel III reforms (that is, capital requirements that regulators plan to phase in by 2019), banks will have to maintain capital levels that equal at least 7 per cent of their risk-bearing assets. Banks in Canada and a number of other countries already meet this test. But regulators are also changing the rules outlining what kinds of capital would qualify, in an effort to bolster the quality of financial institutions’ capital cushions.
Liquidity coverage ratio
This rule, also being contemplated as part of Basel III, would force banks to hold enough highly liquid assets to be able to get through a 30-day run on their funding. Banks vehemently oppose this measure, saying it would force them to cut back the amount they lend to customers.
Over-the-counter derivatives
The Group of 20 has called for over-the-counter derivatives to be cleared through central counterparties, rather than bilaterally, to reduce the amount of counterparty exposure that banks are subject to. When derivatives are cleared and settled bilaterally, banks take the risk that the counterparty they are dealing may not be able to meet its financial commitments.
Staff
