Bankers Challenging Rules in Vienna Find an Ally in Sovereign Debt Crisis
Deutsche Bank AG Chief Executive Officer Josef Ackermann and HSBC Holdings Plc Chairman Stephen Green are among bankers with a new ally in their tug of war with politicians over stricter rules: Europe’s sovereign-debt crisis.
Balancing tighter regulation after the worst financial crisis since the Great Depression and sustaining a fragile economic recovery is at the center of a three-day meeting starting today in Vienna of the Institute of International Finance, which represents more than 375 financial companies.
“The sovereign-debt crisis makes it easier for banks to argue that too much regulation will hurt economic growth because of the fragile environment,” said Dirk Becker, an analyst at Kepler Capital Markets in Frankfurt. “They can argue that the risk of a double dip will increase if the credit supply is hurt.”
Bankers are stressing the costs of too much regulation as the Basel Committee on Banking Supervision prepares to raise the level of capital banks should hold, potentially reducing funds available to lend and to fuel growth. The IIF, which Ackermann chairs, tomorrow will discuss a report on the “economic impact of proposed global financial regulatory reforms,” highlighting risks to growth and employment.
The euro has slumped 19 percent against the dollar in the past six months as a fiscal crisis that started in Greece spurred investor concern that debt-burdened nations might default. Government pledges to cut spending may shave as much as a full percentage point off gross domestic product growth next year, according to Morgan Stanley.
European Central Bank President Jean-Claude Trichet and Greek Prime Minister George Papandreou -- both embroiled in the euro crisis -- are due to travel to Vienna to speak to the assembly of 800 finance executives. Billionaire investor George Soros, Basel Committee Chairman Nout Wellink and UBS AG CEO Oswald Gruebel are also slated to speak at Vienna’s Hofburg Palace. HSBC’s Green is chairman of the IIF’s steering committee on regulatory capital.
Europe’s sovereign-debt crisis makes it “more likely” that regulators will delay implementation of new rules by two to five years, said Peter Thorne, a London-based banking analyst at Helvea SA.
“It’s not the role of regulators to precipitate the crisis,” he said. “They will wait and implement these things only as economic conditions allow.”
At stake for banks is the potential need to raise as much as $375 billion in fresh capital under the proposals being discussed by the Basel Committee, according to estimates by analysts at UBS, Switzerland’s biggest bank. Banks worldwide have written down $1.76 trillion since the credit crisis started in 2007, according to data compiled by Bloomberg.
Group of 20 finance ministers meeting in Busan, South Korea, earlier this month reiterated a deadline of the end of this year to agree on new capital and liquidity rules with the aim of implementing them by the end of 2012.
“We need to free the environment from this poisonous regulatory uncertainty,” Financial Stability Board chief Mario Draghi said June 5 in Busan.
Deutsche Bank of Frankfurt and London-based HSBC were among banks that wrote to the Basel Committee in April about the risks of regulation to economic growth.
The 36-year-old committee of central bankers and bank supervisors meets in the Swiss city of Basel and is rewriting international capital standards for banks.
“It is unrealistic to expect such significant capital- raising to occur without a significant impact on lending, businesses and ultimately growth and employment,” Deutsche Bank’s global head of government and regulatory affairs Andrew Procter said in the company’s letter.
HSBC Chief Financial Officer Douglas Flint wrote that it’s “essential” to assess “the consequential impacts on employment and the economy.” Deutsche Bank spokesman Ronald Weichert and an HSBC spokesman who asked not to be identified declined to comment on this article.
Financial-services leaders are vying to draw a line in the sand with the banking crisis, which led to hundreds of billions of dollars of taxpayer bailouts of banks such as UBS, Edinburgh- based Royal Bank of Scotland Group Plc and Citigroup Inc. in New York.
The IIF, based in Washington, plays “a significant role” in financial crises by “bringing together the views of leaders of the private financial sector, exchanging those views with public-sector officials, and supporting those with analytical reports,” said Frank Vogl, a spokesman for the IIF.
The IIF was started in 1983 by bankers grappling with the Latin American debt crisis. It was founded at Ditchley Park near Oxford, the location of a U.K. organization founded “to promote Anglo-American understanding.”
The IIF published a report on May 24 calling for a new “cross-border resolution regime” for failed lenders, which would force shareholders, creditors and banks to shoulder the cost of future banking crises. It also voiced opposition to limiting the size of banks or breaking them up, saying they are crucial to financing global corporations and supporting economies.
“As long as we have a banking system we will continue to have banking crises, so the single most important issue is and remains how do we deal with banks when they fail?” said Simon Gleeson, a financial regulatory specialist at Clifford Chance LLP, who is speaking at the conference. “National governments seem to be absolutely terrified of making any firm commitment to mutual cooperation in a crisis.”
While bankers and regulators wrangle over what’s more effective -- holding more capital or being able to let too-big- to-fail banks go bust -- neither approach goes far enough, Nouriel Roubini, the New York University professor who predicted the financial crisis, said at a conference in Zermatt, Switzerland, on June 4.
“The idea that we’re going to orderly close them down through a resolution regime to me is a pipe dream,” Roubini said. “If it’s too big to fail, then it’s just too big. It should be either broken up or induced to break up through really high capital charges.”
To contact the reporters on this story: Simon Clark in London at firstname.lastname@example.org Aaron Kirchfeld in Frankfurt at email@example.com Elena Logutenkova in Zurich at firstname.lastname@example.org