Bloomberg News

Developing Economies Warn of Damage From Basel, Volcker Rules

June 19, 2012

Global regulators are being urged by some developing countries to amend plans that would force banks to boost their capital and liquid assets, expressing concerns the measures may harm their economies.

A survey of developing and emerging economies conducted by the Financial Stability Board revealed concerns that the measures, drawn up in the wake of the 2008 collapse of Lehman Brothers Holdings Inc., “could have adverse consequences and may ultimately impact the development of domestic financial markets in those countries.”

The nations are also concerned that U.S. proposals to ban commercial banks from proprietary trading, known as the Volcker Rule, may damage their “government, corporate securities and derivatives markets,” the FSB said in the report, submitted today to a meeting of the Group of 20 nations in Los Cabos, Mexico and published on the FSB’s website. It didn’t name the countries included in the survey.

Regulators and lenders have clashed over how to implement the international bank-capital and liquidity standards, which are set to become fully effective in 2019. The measures, known as Basel III, would require banks to more than triple the core capital they hold to protect themselves from insolvency. Lenders deemed to be systemically important would be required to hold even more reserves.

Banks including HSBC Holdings Plc (HSBA), BNP Paribas SA (BNP) and Citigroup Inc. (C:US) have called for changes to some elements of the Basel plans, warning they may limit growth.

Trade Finance

Specific concerns named in the report include that the new rules might make it more expensive for lenders to provide so- called trade finance services, the FSB said. These services, essential to international trade, include guarantees from an importer’s bank that a buyer will pay the seller on time, as well as short-term loans.

There is also a more general concern lenders will scale back activities outside their core markets, the board said.

The FSB brings together finance ministry officials, central bankers and regulators from G-20 nations to coordinate rulemaking.

While nations have agreed to put the Basel measures onto their books by Jan. 1, 2013, regulators have already placed some parts of the accord under review. This includes a minimum level of liquid assets a bank must hold, which global regulators plan to update by the end of this year.

Separately, the FSB also said some regulators are lagging behind in implementing measures for handling the failure of cross-border banks. The measures, which include requiring systemically important lenders to draw up so-called living wills showing how they could be wound down in a crisis, are supposed to be in place by the end of this year.

“Serious problems exist” for some FSB members in meeting the rules on time, the board said in a report. “Remedial action is warranted.”

To contact the reporters on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.


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