By Masahiro Hidaka and Shamim Adam (Update4)
January 7, 2010
SourceJan. 7 (Bloomberg) -- Central bankers will hold talks with banking executives in Switzerland this weekend amid concern financial companies are rebuffing a push to increase regulation and temper risk-taking as the recent crisis ebbs.
The gathering to discuss regulation will take place at the Bank for International Settlements in Basel, according to two Group of Seven central bank officials. The BIS invited commercial bankers citing concerns that they are returning to the excessive-risk patterns that helped spark the global crisis in 2007, the Financial Times reported today.
The meeting comes a month after the BIS urged central banks to take greater account of financial stability and published proposals aimed at forcing banks to hold more and better-quality capital and discourage leverage. The MSCI World Index of stocks has surged 73 percent since its low of last March.
“The central bankers are clearly aiming to head off the excesses that will certainly come out of the very easy monetary policy” put in place during the crisis, said Bill Belchere, global chief economist at Mirae Asset Securities in Hong Kong. “They have no choice but to be prudent and vigilant to grapple with the potential problems and stop bubbles before they emerge.”
The BIS meetings occasionally feature sessions with private banks and this month’s gathering will be such an example, the two officials said on condition of anonymity because the agenda isn’t public. Bank executives usually attend the January meet.
Central Bank Rates
European Central Bank President Jean-Claude Trichet, who chairs the G-10 club of central bankers, is scheduled to hold his regular Basel press conference on Jan. 11. A BIS spokeswoman declined to comment on the weekend’s agenda or on the FT report.
The Federal Reserve has cut its benchmark rate to almost zero and taken on more than $1 trillion of assets on its balance sheet to combat the credit freeze, while its Japanese counterpart’s benchmark is also near zero. The ECB’s main rate is a record-low 1 percent.
Representatives of banks including BlackRock Inc., Citigroup Inc. and Wells Fargo & Co. will attend the session over the Jan. 9-10 weekend, the FT reported. Wells Fargo CEO John Stumpf isn’t planning to attend, said Janis Smith, a spokeswoman for the San Francisco-based bank. A Citigroup spokesman who declined to be identified said the bank had no comment.
Supervision
“The big issue is disclosure of financial data -- whether banks should have to disclose more information about their risk,” said Fariborz Moshirian, professor of finance at the Australian School of Business at the University of New South Wales. “Multinational banks are finding it very convenient at the moment to increase their activities because there is not any extra supervision.”
Bank of Italy Governor Mario Draghi, who heads the Financial Stability Board of international regulators and central bankers, is scheduled to produce a progress report on strengthening regulations before the next G-20 summit. Draghi has warned that banks may seek to block regulatory overhauls as the global economy recovers from the deepest postwar recession.
Banks, buoyed by improving earnings and after repaying state bailouts, have been lobbying against reforms aimed at restricting how much risk they can take. Goldman Sachs Group Inc. and JPMorgan Chase & Co. have seized on record-low rates, a stock-market rally and the demise of competitors like Lehman Brothers Holdings Inc. to bolster trading profits.
‘Critical Stage’
“As the situation improves, the power of vested interests contrary to any substantive reform get stronger,” Draghi said in a Nov. 12 speech in Rome. A “critical stage” in overhauling regulation and oversight of financial markets is beginning and authorities need “to take bold and radical action to remedy the current deficiencies,” he said.
The Basel Committee on Banking Supervision, for which the BIS provides a secretariat, last month issued a consultation on a series of proposals aimed at making the banking industry more resilient. Among its suggestions was improving the quality of capital that banks hold and introducing a leverage ratio.
The BIS said in a report last month that central bankers should allow financial stability to play a role in monetary policy because low rates often spur banks to take on too much risk. It said in the same report that the “current crisis has underlined the importance” of introducing so-called macroprudential supervision, which assesses the risks posed to the whole banking sector rather than individual companies.
U.S. President Barack Obama has also expressed frustration that financial firms that got government bailouts are continuing to take large bonuses and fighting his effort to revamp bank regulations.
“I did not run for office to be helping out a bunch of, you know, fat-cat bankers on Wall Street,” Obama said in an interview with CBS’s “60 Minutes” broadcast on Dec. 13.
Central bankers meet six times a year at the BIS, which calls itself the bank for central banks, holds currency reserves on behalf of its members and produces research.
To contact the reporters on this story: Masahiro Hidaka in Tokyo at
mhidaka@bloomberg.net; Shamim Adam in Singapore at
sadam2@bloomberg.netLast Updated: January 7, 2010 05:01 EST