Basle meeting to focus on banks' spurning of reform

CENTRAL BANKERS will hold talks with banking executives in Switzerland this weekend amid concern financial companies are rebuffing a push to increase regulation and temper risk-taking as the recent crisis ebbs.

The gathering to discuss regulation will take place at the Bank for International Settlements (BIS) in Basle, according to two Group of Seven central bank officials.

The BIS invited commercial bankers, citing concerns they are returning to the excessive-risk patterns that helped spark the global crisis in 2007. The meeting comes a month after the BIS urged central banks to take greater account of financial stability, and published proposals aimed at forcing banks to hold more and better-quality capital and discourage leverage.

European Central Bank president Jean-Claude Trichet, Deutsche Bank AG chief executive Josef Ackermann and Federal Reserve chairman Ben Bernanke are among the officials and executives travelling to Basle.

“The central bankers are clearly aiming to head off the excesses that will certainly come out of the very easy monetary policy,” put in place during the crisis, said Bill Belchere, global chief economist at Mirae Asset Securities in Hong Kong. “They have no choice but to be prudent and vigilant to grapple with the potential problems and stop bubbles before they emerge.”

The BIS meetings occasionally feature sessions with private banks, and this month’s gathering will be such an example, two officials said on condition of anonymity because the agenda isn’t public. Bank executives usually attend the January meeting.

Representatives of banks including BlackRock, Citigroup and Wells Farg will attend.

“The big issue is disclosure of financial data – whether banks should have to disclose more information about their risk,” said Fariborz Moshirian, professor of finance at the Australian School of Business at the University of New South Wales. “Multinational banks are finding it very convenient at the moment to increase their activities because there is not any extra supervision.”

Bank of Italy governor Mario Draghi, who heads the Financial Stability Board of international regulators and central bankers, is scheduled to produce a progress report on strengthening regulations before the next G20 summit. He has warned banks may seek to block regulatory overhauls as the global economy recovers from the deepest postwar recession.

Banks, buoyed by improving earnings and after repaying state bailouts have been lobbying against reforms aimed at restricting how much risk they can take.

Goldman Sachs Group and JPMorgan Chase have seized on record low rates, a stock market rally and the demise of competitors like Lehman Brothers Holding to bolster trading profits.

“As the situation improves, the power of vested interests contrary to any substantive reform get stronger,” Mr Draghi said in a November 12th speech in Rome. A “critical stage” in overhauling regulation and oversight of financial markets is beginning, and authorities need “to take bold and radical action to remedy the current deficiencies”, he said. – (Bloomberg)