Mexico City: Countries may face sanctions if they fail to implement new rules aimed at safeguarding the global banking system from another financial crisis, a senior Mexican finance official said.
New rules forcing banks to roughly triple the size of capital buffers they hold are set to be phased in over six years starting in January, after each country has finalised its own version.
But the United States and Europe, home to most of the world’s largest banks, are still at the drafting stage, prompting speculation that the Basel III timetable may be postponed.
Juan Manuel Valle, head of banking supervision at the Mexican Treasury, said no country had suggested a delay but any that failed to meet the deadline would face pressure from their peers.
“For the ones that don’t have regulations in place in January, the question will be, what kind of punishment will they face?” he told Reuters on the sidelines of Group of 20 meetings, adding that details would only be worked out after countries become “non-compliant.”
Mexico is hosting meetings of G20 finance ministers and central bankers on November 4-5, when policymakers will consider what else needs to be done to ensure that the world’s biggest banks do not come calling for fresh taxpayer bailouts.
G20 countries in 2010 agreed on Basel III rules to make sure banks had enough of their own resources to shield against future crises. But the rules have come under withering criticism from US and British regulators who have joined banks in calling for a massive re-think.
Thomas Hoenig, a director at the US Federal Deposit Insurance Corp, which regulates some banks, and Bank of England director of financial stability Andrew Haldane have both slammed the rules for being overly complex.
Banks have said that tougher capital standards will force them to put the brakes on lending, which is already sluggish under the weight of slumping global economic growth, and may further delay recovery.
Under the rules, all banks will have to hold a capital buffer of at least 7 per cent. But G20 leaders have already agreed that the world’s top banks — including Goldman Sachs
and Deutsche Bank — should face more intensive scrutiny and hold higher levels of core capital.
Valle said European banks were clearly worse off than their US counterparts. Banks in France and Germany, the two biggest euro zone countries, have ratios of top quality capital to risk-weighted assets of less than 12 per cent while others have much lower ratios, according to the International Monetary Fund. The ratio in the US stands at 13.4 per cent.
“We can concede that (American banks) aren’t ready on an administrative level, but if they (the rules) are ready tomorrow, the banks can comply the day after tomorrow. That is not the case in Europe,” he said.
Valle said he would think twice about being overly tough on timing if he were in charge.
“If you ask me, I think we exaggerated with what we did (on the Basel timetable) and we should think again about whether we want to support our financial institutions more to finance growth and accelerate the exit from the crisis ... and lengthen the period of adjustment towards the new levels.”
