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UK regulator says changes afoot for "too complex" bank rules

Mon, 21st Jan 2013 17:27

* Bank's Haldane signals push to harden global rules in UK

* Haldane says capital, bonus, accounting rules too weak

By Huw Jones

LONDON, Jan 21 (Reuters) - Bank capital rules coming intoforce this month are too complex and efforts to simplify themare already underway, a senior Bank of England official said onMonday.

Andrew Haldane, the bank's director of financial stability,was among the first senior regulator to question Basel III, theworld's core regulatory response to the 2007-09 crisis, that ledto banks being bailed out by taxpayers.

Basel III, agreed by world leaders, forces lenders to holdmore capital, but Haldane says it is too complex and relies onbanks using their own models to determine capital buffers.

He told British lawmakers there was an increasing awarenessamong international regulators they may have taken a "false turnin the road" by backing Basel III which was written by the BaselCommittee.

"Regulators cannot really police this complex beast,"Haldane said. "There are moves afoot with the Basel Committee toseek ways to simplify and streamline the move to a properregulatory rather than self-regulatory edifice. That may takesome time."

His comments signalled how Britain, whose taxpayers had tosave banks including Lloyds Banking Group Plc and RoyalBank of Scotland Plc, has become a hardliner inregulation after years of "light touch" supervision before thecrisis.

The Basel Committee said earlier this month work onreviewing in-house models would be accelerated this year.

"There is a big straw in the wind ... The big trend here isthe retreat is from in-house models," said Simon Gleeson, afinancial lawyer at Clifford Chance.

The lawmakers sit on a commission that is due to proposelegislative changes, perhaps by March, to improve standards inbanking.

But Haldane said Britain won't wait for Basel's work tofinish and the Financial Services Authority watchdog was alreadyforcing banks to use simpler models for totting up risks fromcommercial property on their books.

INTERNAL MODELS

"There is no reason why they could not do that across awider set of portfolios," Haldane said.

There was also nothing to prevent UK regulators fromimposing "floors" below which capital levels could not fallirrespective of what internal models show, Haldane added.

He is member of the bank's Financial Policy Committee (FPC),which sets the tone and direction for regulation in Britain.From April, the bank becomes the regulator for lenders.

There was also support on the FPC for a higher leverageratio or balance-sheet cap on banks than the 3 percent set underBasel III, he said.

Haldane hoped Britain could also persuade its European Unionpartners to tighten an EU code which governs how much of abanker's bonus is paid upfront in cash.

Again, Britain could take unilateral action.

"My understanding is there is room to be more prescriptive,"he said.

Accounting rules used in the EU, drawn up by theInternational Accounting Standards Board, were also "not asprudent as they could and should be for financial firms," hesaid, arguing the rules failed to ensure banks make earlyprovisions on souring loans and also lead to under-recognitionof losses.

Reforms to accounting rules put forward by the IASB and itsU.S. counterpart were still "unfinished business" and therefore Britain was asking banks directly to make bigger provisionsthan they need to under accounting rules.

"We are working privately with FSA and auditing firms to seeif we can't at least provide better disclosure about fair valuegains and losses than is the case right now," Haldane said.

The UK authorities are thrashing out a "prudent valuationframework" to put a price tag on illiquid or toxic assets, andforce banks to make deductions from their capital buffers.

"We might in time be able to inject a notion of prudentvaluation into accounting," he added.

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Comments and questions to newsroom@alliancenews.com
  
A full 21-day events calendar is provided each day with a subscription to Alliance News UK Professional.
  
Copyright 2024 Alliance News Ltd. All Rights Reserved.

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