World Business

Bankers battling new rules find ally in debt crisis

By Simon Clark (China Daily)
Updated: 2010-06-10 11:49

LONDON - 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 on Wednesday in Vienna of the Institute of International Finance (IIF), 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, on Thursday 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.

Delay ahead?

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.

Related readings:  Europe debt crisis not to impact badly on China: expert  Asia-Pacific firms borrow less amid debt crisis fears  European debt crisis not fatal to China's economy  Europe debt crisis to have limited impact on China

"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.

Bloomberg News