European Financial Regulator Warns Against Resistance to Change

The head of the Dutch markets regulator, Hans Hoogevorst, warned about the need to press on with reforms despite growing industry and political resistance at a conference in Australia run by the main regulator, the Australian Securities and Investment Commission. According to Dr Richard Reid, director of research at the International Centre for Financial Regulation (ICFR): “[Hoogevorst’s] comments seem to reflect a growing worry among the regulatory community that efforts to agree and implement financial reforms may be waning in the face of economic recovery and a more organised and articulated push back from the industry.”

In the course of the next few weeks, there will be a number of reports going to the Financial Stability Board (FSB) in preparation for the upcoming G20 meetings. “Moreover, the IMF will also be preparing its next Global Financial Stability Report and it will discuss, among other subjects, the options for insurance levies or transactions taxes on banks. Hoogevorst was particularly concerned about measures to hike leverage ratios, indicating that these might be set too low or even be non-binding,” Reid added.

At the same conference, the governor of Australia’s central bank, Glenn Stevens, also said that increases in capital ratios were warranted. But in echoes of arguments heard elsewhere, Stevens also noted the importance of strict supervision and sound management. Some commentators have argued that while some capital adjustments are necessary, as are moves to make banks bear more of the costs of failure and recovery, the emphasis on reform should be much more on creating an environment in which supervision and enforcement are more effective, according to Reid.

In Australia, which is generally deemed to have had a ‘good crisis’, there has been some criticism of plans by the local prudential banking regulator, the Australian Prudential Regulation Authority (APRA), to change liquidity rules next year after the latest round of Basel reforms, which would require Australian banks to hold more reserves in high quality (low yielding) assets such as government debt.

“Hoogevorst’s remarks may also be a reflection of the evident tension between the G20 attempts to portray a united, international response to the crisis set against the apparent tendency for individual jurisdictions to press ahead with measures which they see best suit their own political agenda. With the G20 meetings fast approaching, the committee’s coherence will be under close examination,” said Reid.


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