Big chal­lenges loom for bank reg­u­la­tors

Weekend Argus (Saturday Edition) - - BUSINESS - PAUL TAY­LOR

PARIS: Shadow bank­ing, insurance gi­ants and over- thecounter de­riv­a­tives are the big­gest chal­lenges on global fi­nan­cial reg­u­la­tors’ list of un­fin­ished busi­ness, Bun­des­bank board mem­ber An­dreas Dom­bret told Reuters in an in­ter­view.

Dom­bret said reg­u­la­tors had made ma­jor progress in draft­ing and ap­prov­ing tougher cap­i­tal rules to make banks safer since the col­lapse of US in­vest­ment bank Lehman Brothers plunged the world fi­nan­cial sys­tem into cri­sis in Septem­ber 2008; but sev­eral ar­eas were still not ad­e­quately reg­u­lated.

“Where we still have the most work to do is in solv­ing the too-big-to-fail prob­lem,” he said dur­ing a visit to France this week. “A lot has been done on the con­cepts, but we are still be­hind with im­ple­men­ta­tion.

“Five years af­ter Lehman, we can’t be fully sat­is­fied with what we’ve achieved. What is miss­ing is above all the im­ple­men­ta­tion of the new rules for re­solv­ing in­ter­na­tional banks op­er­at­ing across bor­ders.”

Dom­bret, in charge of the fi­nan­cial sta­bil­ity port­fo­lio on the Ger­man cen­tral bank’s board, said reg­u­la­tors had barely made a start on deal­ing with too-big-to-fail in­sur­ers to avoid another AIG-style prob­lem, even if there were fewer sys­tem­i­cally im­por­tant in­sur­ers.

The US ad­min­is­tra­tion in­ter­vened to res­cue the gi­ant in­surer in 2008, tak­ing on its trou­bled as­sets to pre­vent it col­laps­ing with cat­a­strophic con­se­quences for the fi­nan­cial sys­tem.

“We’ve solved a lot of the con­cepts around banks, but less on in­sur­ers, less on in­fra­struc­ture such as clear­ing houses,” Dom­bret said in the re­marks re­leased on Thurs­day. “We are con­cen­trat­ing lots of risks in the clear­ing houses.

“(Reg­u­la­tion of) the shadow bank­ing sec­tor is still a con­struc­tion site, al­though some progress is vis­i­ble.”

He said his big­gest con­cerns in the es­ti­mated $ 70 tril­lion (R700 tril­lion) “non-bank bank­ing sec­tor” were money mar­ket funds, es­pe­cially those with real-time mark-to-mar­ket sys­tems, which had to some ex­tent re­placed banks in fi­nanc­ing some gov­ern­ments. A se­nior Euro­pean Com­mis­sion of­fi­cial said this week that Brus­sels had ruled out hasty curbs on shadow bank­ing. – Reuters

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