LONDON: Britain's finance minister George Osborne voiced confidence on Tuesday that politicians and regulators from major economies will achieve a framework for sorting out problems with bank regulation within six months.
The Financial Stability Board, the regulatory arm of the Group of 20 leading economies (G20) that is chaired by Bank of England Governor Mark Carney, is targeting a G20 meeting on Nov. 15-16 in Brisbane, Australia, for resolving questions such as how to handle big, multinational banks if they hit trouble.
"We need to have an end to the process to bring some certainty to the issues, and Mark (Carney) has set the Brisbane G20 summit as the point where we can get the global political agreement achieved, and I am confident that timetable is possible," Osborne said at a bank industry conference.
Regulators are putting in place a complex jigsaw of rules and mechanisms to wind down failed banks without the drastic fallout seen when Lehman Brothers went under in 2008. Osborne said finance ministers and the FSB need to "make that all coherent and work for global institutions."
The aim is to shield taxpayers, who had to shore up lenders in the 2007-09 financial crisis, from the cost of ensuring that a bank's essential services, such as its payments system, can keep functioning.
Regulators see solving the "too big to fail" problem as key to restoring trust that globally coordinated rules can work rather than each country going it alone.
Key questions are what sort of creditors should be 'bailed in' to help recapitalise a bank in trouble, whether that loss-absorbing capital should be held by parent banks or held by subsidiaries in each country, and amending derivatives contracts to give regulators time to wind down a bank that has failed.
Osborne was speaking at the start of a 3-day meeting in London of the Institute of International Finance (IIF), the trade group for banks, insurers and other financial firms.
"I do understand that people in finance and banking have had to put up with a lot of regulatory change in the last few years, but that's not surprising when you have a banking crisis and taxpayers are forced to put a huge amount of money into banks," Osborne said.
Banks also remain under scrutiny for misconduct issues and penalties for past misdeeds are on the rise, and France's BNP Paribas could be fined $10 billion or more for allegedly evading US sanctions relating to Iran.
BNP's Chairman Baudouin Prot was due to speak at the IIF event but he pulled out, which the bank said was due to a change in his agenda.
"REGULATORY BACKLASH":
Davide Serra, founder and CEO of Algebris Investments, which specialises in the financial sector, criticised the scale of regulatory change that has been unleashed since the crisis and a lack of coordination between European and US regulators.
"Because of the weakness of some business models we ended up having a massive regulatory backlash," Serra said.
Last week International Monetary Fund chief Christine Lagarde said bank industry reform had been slowed and hampered by fierce industry lobbying, but a senior regulator said on Wednesday rules will never be perfect and regulators need to "be humble" about shortcomings.
"In a highly dynamic world, imperfect knowledge leaves regulatory design permanently in catch-up mode," said Jaime Caruana, general manager of the Bank for International Settlements.
"As soon as a rule, simple or complex, becomes a binding financial regulation, it will cause changes in financial institutions' risk management that will make it less binding and less effective," he said, referring to this as a "regulatory uncertainty principle"
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