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Asia Pacific Bank CEOs Call for Balanced Regulation
Asia Pacific banks have navigated the crisis better than their US or European counterparts, and emerged in robust shape, two of the region’s bank CEOs told the Credit Suisse Asian Investment Conference today.
Addressing a panel on Global Financial Regulation, Standard Chartered Bank’s Asia CEO Jaspal Singh Bindra and Commonwealth Bank of Australia CEO Ralph Norris also noted that while global regulatory reform was necessary, it should avoid unfairly impacting on Asian financial institutions.
The two bank bosses noted that the Asian banks avoided the bank nationalizations and bailouts that became commonplace in the U.S. and Europe during the height of the financial crisis. This should be reflected in any global regulatory reform, which should not take an excessive toll on banks in the Asia Pacific, they said.
Much of the discussion in the panel focused on the preparation of the Basel III guidelines, and in particular those relating to the definitions of capital, leverage ratios and liquidity ratios.
“I think we all agree that it’s in our interests to make sure we have a well-managed financial system, and banks do need to reform,” said Mr. Bindra. “Excessive risk-taking should be both defined and discouraged. That was the prime cause of the challenges we faced in the last two years.”
Mr. Bindra pointed out that Asian banks were very well-capitalized, but said he feared that new regulations could still disadvantage them. “Under the new definition of common equity, they will need to add substantial amounts of capital. In some ways, that will be punitive for Asian banks given their size and single-region focus. There will be an unfair impact on Asian banks to start with.”
Mr. Norris said it would be unfair for Asian banks to suffer from a regulatory reaction to the crisis. “We do term this crisis a global financial crisis, but in reality it was more like a North Atlantic crisis,” he commented. Both panelists praised the strength of macro-prudential regulation in Asia, which Mr. Norris said had partly been a product of Asia’s experience during the crisis of 1997-1998.
Noting that Australian banks’ cost of funding had risen as a result of the crisis despite their soundness, he called on regulators globally not to damage the recovery by implementing measures that could make lending more difficult.
Mr. Norris acknowledged that higher levels of capital and liquidity were likely to be a feature of the new regulatory landscape, which could create challenges. Both he and Mr. Bindra said it was important for regulators to look beyond these issues and consider issues such as the accounting standards applied to banks.
They both expressed concern that the regulatory response to the crisis may have unintended consequences. For example, Mr. Bindra said the 15bp tax on liabilities over US$50 billion proposed in the U.S. could actually encourage banks to participate in higher-risk lending where margins would be proportionately less affected by the levy.
Answering a question about whether excessive regulation of the financial system could spur growth in the shadow banking system, both panelists agreed this was a real risk. “Water always flows downhill to the lowest point,” said Mr. Norris.
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