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Bankers and regulators in "arms race"

Monday 4 October 2010 - by Will Henley

International regulators are locked in an “arms race” with bankers desperate to overcome new restrictions on capital, a senior official at the Bank of International Settlements has claimed.

Stephen Cecchetti, head of the bank's monetary and economic department, today urged regulators to continue “chasing down” banks with high leverage rates as he urged no let up in the move towards greater global financial regulation.

Cecchetti, speaking at the Westminster Economics Forum in London, UK, said: “We have to make sure that the regulators and the supervisors have the wherewithal to compete in this arms race because the bankers and the people in the financial system are not going to lay down and just stop.

“The banks are going to try and get around the requirements... So it is really up to the supervisors, as well as those of us responsible for trying to establish the standards, to make them strict and enforceable.”

In his address to the forum, hosted by the UK’s National Institute of Economic and Social Research, Cecchetti defended the new Basel III minimum capital requirements and called for increased cooperation in regulation and supervision.


Referring to the development of so-called hybrid capital and contingent capital instruments, Cecchetti indicated that he was concerned that regulators may not be able to keep pace with banks' financial innovation.

“These things are incredibly complex not only in terms of their economics and financial engineering and therefore their pricing, but also in terms of their legal structure and their standing in the tax code.”

He continued: “If we are to reap the benefits of a globalised economy and ensure a level playing field, then we have to maintain the momentum towards global financial integration.

“One thing that I would like to emphasise here is that, taken together, the new standards will indeed produce a significant increase in the capitalisation of the banking sector worldwide. Provided we handle the transition properly, these stronger standards should provide benefits from the day their implementation begins.”


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