‘Okay in principle, but may hamper the present global recovery’
Global bankers and economists on Friday slammed the Basel liquidity proposals and different approaches by regulators to modify the Basel capital requirements.
At a press conference at the Institute of International Finance (IIF) meeting here, Deutsche Bank CEO Josef Ackermann said the Basel liquidity proposals could undermine banks’ ability to provide a range of basic services. He said back-up credit lines that were critical to corporations, as well as funding for businesses in international trade and retail borrowers, could be affected due to the proposals. Banks will be subject to stiffer liquidity and capital norms under the Basel-III rules, made after the global financial crisis exposed their huge lacunae.
The Basel committee has come out with two standards to address the acute liquidity problems seen by banks at the start of the global financial crisis. First, it expects banks to comply with a liquidity coverage ratio from the start of 2015, requiring them to hold sufficient high-quality assets to withstand a 30-day period of acute stress. Meanwhile, a net stable funding ratio will come into force from January 2018, aimed at removing long-term structural liquidity mismatches on bank balance sheets.
Ackermann also came down heavily on different regulatory approaches to modify Basel capital requirements. “It poses the risk of fragmenting the global financial system. And, it would have severe consequences on financial markets and the global economy,” he added.
In many countries, all sorts of political pressure were mounting on regulators to start implementing regulatory changes, he added. “Because, if you have different capital requirements in different parts of the world, different liquidity provisions, different compensation structures, you will have arbitrage opportunities that is not in the interest of prosperity in growth on a global scale,” he said.
Ackermann also criticised a move by the Financial Stability Board of G-20 countries to develop approaches to systemically important financial institutions, a highly complex area. “We believe that there should be no rush to judgement regarding capital surcharges on such companies. Rather, there should be an assessment of a full range of responses,” he said.
IIF chief economist Philip Suttle said more regulations were required when economies overheat, but currently many advanced economies were still recovering. “It (over-regulation) is a good policy but at the wrong time.” ICICI Bank Non-Executive Chairman K V Kamath said Indian banks were ahead of the curve and would meet any requirement that would come up from Basel-III. Reserve Bank of India Governor D Subbarao had yesterday stated that the Indian banking system would meet the capital requirements of Basel-III at an aggregate level, though a couple of banks might not be geared up to the situation.
