13 April 2012

Bloomberg: Bank overhaul mess is noose around EU’s neck, EBF says

Global financial regulators have failed to create clear standards for banks, meaning lenders are hoarding cash instead of providing loans needed to drive growth, European Banking Federation President, Christian Clausen, said.

“This is the biggest change in the banking system ever seen; all items in the balance sheet are in play”, Clausen said in an interview in Stockholm yesterday. “The incentive for banks, even though they have built up their capital, to actually go out and support good initiatives is very limited.”

Since the 2008 global financial crisis routed markets, sent unemployment soaring and some governments toppling, policy-makers have looked for ways to guard against a repeat of the turmoil by requiring banks to build up bigger buffers. The Basel Committee on Banking Supervision wants lenders to target core capital of at least 7 per cent of their risk-weighted assets, compared with as little as 2 per cent before the crisis. The European Banking Authority has set a temporary 9 per cent target for some lenders.

Several of the new standards lenders need to adopt are confusing, said Clausen, who is also the chief executive officer of Nordea Bank AB (NDA), the largest Nordic lender. That means banks are erring on the side of caution as they navigate through a shifting regulatory environment, he said.

“There will always be tension between regulators and bankers”, Peter Norman, Sweden’s financial markets minister, said in an interview in Stockholm. “Bankers want absolute minimum rules for everything and to be able to raise the bar to where they think it should be. We must always side with the taxpayers.”

Basel III’s net stable funding ratio requires lenders to cut their reliance on short-term money markets by boosting holdings of debt with longer maturities. Equities can be used in calculating that ratio, which is scheduled to become binding from 2018.

The European Banking Authority estimates lenders in the region had an average net stable funding ratio of about 90 per cent relative to their liquid assets at the end of June last year, according to a survey of 157 lenders.

“To fulfil the minimum standard of 100 pe rcent on a total basis, banks need stable funding of approximately €1.9 trillion", ($2.5 trillion) the EBA said in an April 4 report.

It seems “regulators still need to find some other asset class that can count as a liquid asset to make this ratio more manageable for banks”, Prateek Datta, an analyst at Royal Bank of Scotland PLC in London, said in an email.

“There is one thing out there that is gaining traction in discussions and that’s the risk that we won’t generate growth in the economy”, Clausen said. “One of the big uncertainties that politicians should really be aware of is the ever-growing level of capital and funding regulation.”

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