Bankers discuss regulatory change

Bankers discuss regulatory change

By Francesco Guerrera in New York and Peter Thal Larsen in London

Published: January 9 2009 23:23 | Last updated: January 9 2009 23:23

US and European banking chiefs will converge on Basel on Saturday for a behind-the-scenes meeting with central bankers and regulators to discuss the post-crisis regulatory framework.

The gathering, hosted by the Bank for International Settlements, is expected to see the attendance of such as Morgan Stanley’s chief executive John Mack, Citigroup’s chairman Sir Win Bischoff and Crédit Suisse’s chief Brady Dougan. Other leading European institutions, including UBS and Deutsche Bank, are expected to be represented.

The presence of heavy hitters underlines the financial industry’s desire to shape the regulatory framework that will govern the sector once the current turmoil abates. “It is important to be at the negotiating table well before decisions are made. We need to make our voice heard,” a senior Wall Street executive said.

Although the meeting of central bank governors and financial regulators is held every January, it has taken on greater significance this year as authorities round the world hammer out their response to the crisis.

These efforts have taken on a new urgency as much of the detailed preparation needs to be completed before the planned summit of the G20 group of leading economies and developing nations, due to be held in London at the beginning of April. The Basel Committee for Banking Supervision, which sets world banking regulations and designed the Basel II framework to measure banks’ capital, has signalled plans to encourage banks to hold greater capital reserves in future, while making provisions for future bad debts throughout the economic cycle.

It is also working on guidelines to ensure that banks hold greater liquidity reserves than before.

While most bank executives acknowledge the need for tougher regulations, many fear their capital requirements will be increased at a time when they are still grappling with the financial crisis and subsequent downturn in the global economy.

Bankers are keen to ensure that common rules are introduced round the world, limiting the scope for some countries to take advantage of tough restrictions in others.

However, the question remains whether central banks and financial regulators can agree significant changes to the global framework in the space of a few months. The original Basel II protocol took nine years to design and implement and has still not been fully adopted in the US.

At the weekend meeting, private sector bankers will each give a short presentation on a topical issue before leaving the room for closed-doors discussions between central bankers and regulators.

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