Global banks aggressive push to scale back or postpone new capital rules for the world's largest banks is being met with little sympathy from international regulators who are set to finalize these standards in the coming weeks.
At events across Washington this weekend, set to coincide with meetings of the International Monetary Fund and World Bank, several regulators made clear they believe higher capital standards for large banks are key to making the financial system more stable.
Many regulators sought to push back against specific arguments being put forward by banks.
For instance, banks and their lobbying groups contend the capital standards, agreed to as part of the Basel III agreement, will cause banks to lend less and hurt the economy at a time when recession worries are troubling world markets.
While the worsening global economic outlook has implications for bank performance, it does not provide a rationale for delaying the implementation of Basel III, Bank of Canada Governor Mark Carney told the annual meeting of the Institute of International Finance (IIF), a bank lobbying group, on Sunday.
New York Federal Reserve Bank President William Dudley made clear he is unmoved by the argument that it is difficult to determine all the banks that are systemically important, or SIFI's, and who would have to meet the additional capital surcharge.
I appreciate that it is impossible to calibrate 'SIFIness' precisely, but this is not a valid argument for no surcharge, Dudley said at an event sponsored by the Bretton Woods Committee on September 23.
The logic behind the SIFI surcharge is that the failure of a systemically important institution would generate a very large shock to the rest of the financial system, Dudley added. As a consequence, it makes sense to require higher capital for such firms to reduce their probability of failure.
At issue is the new capital requirements set out in the Basel III international regulatory agreement.
The agreement, which is to be phased in from 2013 through 2019, will require banks to maintain top-quality capital equal to 7 percent of their risk-bearing assets.
Banks have mostly agreed this minimum level is necessary.
On top of that, however, global systemic banks may have to hold up to an additional 2.5 percent buffer, which will impact about 28 of the world's biggest banks.
This provision is likely to hit banks like JPMorgan Chase
The Basel Committee of global regulators is due to finalize plans Tuesday and Wednesday for the surcharge on large banks, which will be phased in between 2016 and 2018.
The heads of the Group of 20 leading and emerging economies are expected to give final approval to the rules in November and then it will be up to each country to implement them.
Banks have also complained that countries will implement the standards differently creating a competitive advantage for some banks.
It is essential that the Basel agreements involving global and regional banks be applied in all major jurisdictions at the same time, Deutsche Bank CEO Josef Ackermann said at an IIF news conference on Sunday. Right now, all the indications show that this is not the case.
Regulators said they will work to make sure the rules are enforced evenly but also said banks need to embrace the new standards and start working to adopt them.
This thing will have to be done, Stefan Ingves, governor of Sveriges Riksbank and chairman of the Basel Committee on Banking Supervision, said at the September 23 Bretton Woods event.
(Reporting by Dave Clarke, editing by Diane Craft)