18 March 2020

Financial Times: Banks lobby regulators to relax post-crisis rules

The global banking industry is demanding regulators relax or delay a raft of post-crisis rules on everything from capital and liquidity to accounting and climate change, which they argue are hampering their ability to respond to the coronavirus crisis. 

Executives have launched the globally co-ordinated push to convince supervisors including the Bank of England, the European Central Bank and US regulators to ensure that new rules and standards do not impede their efforts to keep money flowing to the real economy. 

“With the pandemic continuing to cause significant pressures on markets . . . in short time, policymakers may need to move to new realms of response — including targeted supervisory and regulatory policy measures,” said Axel Weber, chairman of Swiss bank UBS and the Institute of International Finance, a worldwide trade body for the industry. “Anything short of a global, integrated approach will prove unsuccessful.”

This month the Stoxx Europe 600 Banks index and the Dow Jones Bank Index of US lenders have each lost more than 40 per cent, while the cost of insuring bank debt through credit default swaps has soared. As the coronavirus pandemic roiled markets, the Bank of England made an emergency cut to interest rates and the Federal Reserve slashed US interest rates to zero, part of wider packages to shore up support for the global economy.

“Cutting interest rates is almost irrelevant,” said one executive at a global bank, who is among those leading the lobbying effort. “The right thing to do is to get the regulation appropriate to the conditions and to flood the market with liquidity.” 

The increasingly nationalist politics of the world has meant that there has been little to no co-ordinated action between the individual countries Bank executive Chief among their concerns is the introduction of new international capital rules known as Basel IV that force banks to hold extra loss-absorbing buffers, according to several people briefed on the discussions between banks and supervisors. 

One executive said banks were pushing for an extension of the implementation of Basel IV — which is due to come into full effect by 2027 — to prevent banks having to build up capital levels by 2021. [...]

However, Sascha Steffen, a professor at the Frankfurt School of Finance and Management, warned regulators not to roll back the introduction of capital rules that were “responsible for the fact that banks have entered the coronavirus crisis in a much better position than they did the 2008 crisis”. 

Bill Coen, the former head of the Basel committee of international banking regulators, said that after two decades of engaging with bank advocacy efforts, “my knee-jerk, somewhat cynical reaction is the phrase ‘never let a good crisis go to waste’”. [...]

Capital requirements are just one area where banks are demanding regulatory relief. The industry has identified an array of other rules on accounting and liquidity they describe as “procyclical” — meaning that they become more onerous in times of economic stress. 

In Europe, banks are calling for supervisors to delay the introduction of tough new accounting rules, known as IFRS9, which force banks to set aside money to cover loans to distressed borrowers before they actually start to default. [...]

Banks also said that at a time of exploding trading volumes they are struggling to input extra data into the monitoring systems used to create compliance and market abuse alerts, which supervisors use as a starting-point for investigating malpractice. They argue that their IT departments should be focused primarily on ensuring that their trading systems are able to operate smoothly. 

Executives have also asked that the transition from the discredited Libor rate to new interest benchmarks be delayed from its current hard deadline of 2022 to free up employees to work on more pressing matters.

Some signs exist that regulators are reacting favourably to the banks’ demands. For instance, the US Federal Reserve has relaxed some bank liquidity requirements while the Securities and Exchange Commission has waived some requirements on recording traders’ calls. 

In Germany, the main financial watchdog loosened capital requirements on Wednesday, partially reversing its earlier position, while European regulators have delayed stress tests that measure banks’ balance street strength.  [...]

Full article on Financial Times (subscription required)

© Financial Times