Josef AckermannKAI PFAFFENBACH
The world's big banks are pushing back as the move by global finance officials for more stringent regulation gathers force.
Deutsche Bank AG chief executive officer Josef Ackermann, who leads Germany's biggest lender and chairs the International Institute of Finance, suggested on the weekend that efforts by the Group of 20 nations to require financial institutions to hold more money in reserve risked choking economic growth.
"The capital issue is important, but it's not as important as liquidity and profits," Mr. Ackerman said. Policy makers should be wary that their efforts "could go too far and jeopardize real growth in the economy," he added at press conference in Turkey's financial capital.
Mr. Ackerman made the remarks during a conference hosted by his 375-member lobby group in the same city at the same time that economic officials from the 186 countries that belong to the International Monetary Fund and the World Bank began annual meetings of the two institutions.
The response from policy makers who have deployed hundreds of billions of dollars bailing out failed financial institutions, buying toxic securities and guaranteeing banks' asset purchases was predictably snide.
"It was only a year ago that we were on the precipice of our international banking system failing and having a massive international crisis that would have affected everyone's normal lives," Finance Minister Jim Flaherty said in an interview.
"I have a little trouble with bankers, who were participants in that, crying wolf … They are going to have to get used to effective, stringent regulation."
With the banks profitable again, financial markets stable and tentative signs of recovery, policy makers such as U.S. Treasury Secretary Timothy Geithner and Bank of Italy Governor Mario Draghi are racing to lock in regulatory changes before they lose the political advantage.
Walter Mattli and Ngaire Woods, two professors at Britain's Oxford University, published research earlier this year that shows that the longer politicians wait to implement reforms after a financial crisis, the greater the chance that financial industry lobbyists and other specialists take over the process and water down reforms.
Mr. Geithner dismissed Mr. Ackermann's comments as "just lobbying."
"There is always some risk that if you do it too quickly, or you do it poorly, you'll create a bunch of unintended consequences and you will restrain innovation too much," Mr. Geithner told reporters Sunday. "But that's not the main risk we face. The main risk we face is making sure we sustain enough political will to put in place reforms that are going to be strong enough so that we can be more confident that this will be more stable."
Less than two weeks ago in Pittsburgh, the leaders of the Group of 20 countries endorsed a plan to force banks to hold more and higher-quality assets as capital, restrict leverage ratios and demand that compensation be tied to longer-term results, among other measures. They called on their finance ministers to define and implement specific rules over the next couple of years.
Former Canadian prime minister Paul Martin said at a conference in Waterloo, Ont., yesterday that the G20's handling of financial regulation will be one of the issues that determine the group's success as an organization for ordering the world's economy.
Mr. Martin told a conference organized by the Centre for Global Governance Innovation that the G20 should demand mandatory, not voluntary, enforcement of co-ordination by an international body. Without it, financial institutions could seek out jurisdictions with the weakest regulatory systems, he said.
"The time for the G20 to draw the line in the sand is now," Mr. Martin said. "While the right words were said in Pittsburgh, it's far from clear that all of the G20 members are prepared to live up to their commitments."
In Turkey, Mr. Draghi, who also heads the Financial Stability Board, a grouping of international regulators that's responsible for coming up with new regulations, said banks will have lots of time to get used to new rules.
The "new rules will be set out by year-end, will be calibrated next year" and "they will be phased in as conditions improve and recovery is assured with the aim of implementing them in the years 2011 and 2012," Mr. Draghi told reporters, according to Bloomberg News.