In the old-style banking supervision, the banks proposed and the central banks disposed. In the new-generation regulatory regime, the order seems to be the opposite: central banks propose and the banks dispose.

Global banking regulators have come under a barrage of criticism for their recent decision to allow four more years before the banks are required to adopt more stringent liquidity norms in the interest of fail-proof stability of the global banking industry.

The rationale of the Group of Governors and Heads of Supervision of Basel Committee to be more flexible was that they did not want the process of stimulating growth through the use of high quality liquid assets to be interfered with, even if critical resources fell below the threshold in times of stress as we are witnessing today.

The regulators are facing flak that in adopting such a ‘graduated’ step, they have shown a willingness to accommodate the preferences of the banks, going back on their commitment to enforce stiffer conditions to prevent a repeat of the crisis. Or is it that the central bankers are any way smarting under a sense of guilt for their failure to prevent the worst crisis from happening; so they feel obliged to accommodate the banks’ own solutions to the problem? Critics argue that when it comes to a crunch, the regulators invariably back off. Some even say the decision confirms the Basel Committee’s reputation for delay, backsliding and bowing down to pressure.

The actions of the global model-setters give the UAE central bank reasons to feel reassured as the local banking supervisors have themselves received left-handed compliments for being unduly accommodative when it is time for tough decisions. The central bank’s record in announcing decisions apparently without adequate consultations and then going back on them is not particularly impressive.

In one of the recent such instances, a deadline for limiting exposure to state-owned entities has passed without anything further being heard about it.

The latest in the series is the decision revising the loan to value criteria applicable to property mortgages in the country. In what came as a total surprise to banks as well as the property sector, the central bank lowered the maximum loan to value rate to 50 per cent for expatriates and 70 per cent for UAE nationals. The move appeared completely out of tune with the prevailing condition of the property market, which was desperately in need for a stimulus, rather than new restrictions.

The announcement saw the banks hold consultations in a jiffy so as to put up a united front and demand more time for the implementation of the new norms. The central bank is now understood to be veering round the view that more consultations may be in order. Reports suggest that the regulators may hold discussions with the Emirates Banks Association, the organisation of the local banking industry, which is known to enjoy significant clout with the central bank, and find a satisfactory resolution of the problem.

Recently, the central bank had created a stir by adopting a circular drafted by the Emirates Banks Association and commending it to banks for implementation in letter and spirit. The circular had several provisions that arbitrarily favoured the banks and thus were in conflict with the interests of the customers.

It was the height of irony that the central bank had even acknowledged in the circular that the text of the entire content had been drafted and approved by the Emirates Banks Association. Although it could have at best served as a reference paper for discussion, the document was forwarded to the banks as the latest central bank circular for implementation.

The unprecedented move even raised questions about the relationship between the regulator and the regulated and whether the role of the banks’ grouping as a defender of the interests of its members allowed it to appropriate functions of the regulator.

The picture being transmitted from the Swiss city that traditionally plays host to the world’s central bank regulators, and is also famous for watch making, has blurry areas and regretfully the scene at the seat of individual apex banks is not very different.