BlackRock's Hildebrand Joins Call for Hiatus in Bank Regulation

BlackRock Inc. Vice Chairman Philipp Hildebrand said Europe’s delay in forcing banks to boost capital after the financial crisis has hindered growth, but now regulators should pause to allow the industry to adapt to rules already on the books.

Hildebrand, previously a deputy of Chairman Mark Carney at the Basel-based Financial Stability Board, said the slow post-crisis regulatory response was the “most important factor” in explaining why anemic growth persisted in Europe compared with the U.S. Yet Hildebrand said he was “deeply concerned” by talk of a fresh wave of regulation sometimes referred to as Basel IV, which could lead to even higher capital requirements.

“I strongly believe the time has come to reach closure on the reform agenda,” Hildebrand said at a conference in London on Tuesday. “I don’t mean that we should declare mission accomplished, but a lot of changes with profound implications have been enacted, so surely this is now the right time to pause and take stock.”

The term Basel IV, implying a thorough overhaul of the framework known as Basel III, refers to the mass of regulatory work in the pipeline at the Basel Committee on Banking Supervision, primarily implementation and revisions of existing rules. By year-end, the global regulator intends to complete its review of trading-book rules and make proposals on revising the standardized approaches to assessing operational and credit risk.

‘Atmosphere of Fear’

Hildebrand, who joined BlackRock, the world’s largest money manager, after leaving the FSB, acknowledged that he was one of the “hardliners” pushing for reforms in his previous job. Now, however, he said he’s worried that “regulatory rearmament” may have gone too far, become too complex and clouded the incentives for bankers.

“Banks continue to live in an atmosphere of fear,” he said. “If this persists they will become hesitant to make long-term loans because they worry what new capital requirements and other regulations will hit them down the road.”

Hildebrand said his friends in banking and regulatory circles were broadly in agreement with his desire to see a regulatory hiatus, but that uncertainties remained regarding Basel’s proposals on operational and trading-book risk that need to be quickly addressed before banks banks retrench further.

“Getting the banks back to solid footing is crucially important for Europe,” he said. “It’s simply unrealistic to have robust growth if we don’t get back to a robust banking system.”

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