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Two of London's top bankers today warned regulators and governments not to move too fast or be too draconian with their plans for tighter rules on banks.
Stephen Green, chairman of HSBC said that a raft of increases in regulatory capital ratios could “easily withdraw credit from the economy and cause a new credit crunch”.
He added: “The danger is going over the top with risk-averse measures, loading more costs on the system. We need to ensure that the reform of the financial system is one which enables the financial system to perform its role in generating growth, providing the right level of liquidity and capital.”
Peter Sands, chief executive of Standard Chartered, also warned the Government that its plans for much greater regulation of banks would have a “real cost … borne by the economy”.
Green suggested that regulators should “adopt a counter-cyclical capital ratio policy for banks”.
He said: “Nobody should think that too rapid an implementation of change can come without any cost to the European economy or indeed wider society. We need a phased approach to implementation, co-ordinated internationally, across the G20.”
That would mean banks holding more capital during the good times as their loan exposure grows, and then, as the economy turns down, ratios are lessened in order to allow them to carry on lending to stimulate the economy.
Sands also said that the G20's bonus restrictions outlined in September were already distorting competition because they were being brought into place rapidly across Europe but delayed elsewhere in the world.
He added that Standard Chartered had already lost recruitment battles to Asian rivals because it was unable to pay a guaranteed bonus under Financial Services Authority rules.
Sands said regulators were “kidding themselves” if they believed higher capital and liquidity ratios could be absorbed by banks and their shareholders.
Reader views (4)
There is one Law i would like to see and that is No Dividend, No Bonus for the Directors of Banks.
- Stan White, leeds, 18/11/2009 08:30
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Regulation alone would not have prevented the credit crisis. It was apparent that an asset bubble was building and reckless borrowing was going ever higher. Increasing regulation does not reduce the risks to the system, it merely moves it elsewhere. It is noteworthy that it was High Street banks that sucked up tax payer money. High Street banks lent to the public. The failure of regulation was to fail to intervene and drastically clamp down on lending by raising bank capital ratios. This is a simple tool that is very powerful and quickly forces credit rationing. The ratios can be adjusted to reflect individual bank loan portfolios and shield sound lending to businesses. This however would not have fully averted the toxic import of the US sub prime contagion.
- James Macleod Ritchie, Oyster Bay Cove, 17/11/2009 19:09
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I believe the Treasury and FSA should increase the penalties on approved persons who break FSMA 2000 (other laws). At the moment it is the institutions who mostly get hit, whereas its the individual traders etc who do not feel the full force of the law. On capital and liquidity ratios now is not the time to demand reforms and I fear reform is driven more by politics than economics. I agree with HSBC's Mr Green who has real business experience.
- Andrew, Notting Hill, London, 17/11/2009 15:58
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The tail wagging the dog again, we as a society are in great peril if the money men dictate to government, they are in effect running the country, and ruining it, all for a misplaced ethos, the planet is running out of options for a sustainable future we must revert to a future where spiritual values are considered more important than material wealth,intellect must be utilised in a more beneficial way for society rather than for self aggrandizement.
The demise of our culture and society will come from within, not from the barbarians , ie Afganistan ect.
- Richard J Parker, Corbridge, 17/11/2009 15:25
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