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Big challenges loom for bank regulators

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