Banks protest against ‘perverse’ G-Sifi rules
Thursday September 01 2011 | 03:35 AM

Some of the world's largest banks are lobbying hard against international proposals to mark them out as systemically important and make them pay a capital surcharge, according to a trove of consultation responses published on Wednesday.

Barclays, BNP Paribas, HSBC, RBS, Standard Chartered, UBS and Unicredit have all written to the Basel Committee on Banking Supervision urging it to think again on new requirements for banks deemed too big to fail.

The banks insist the fragile world economic recovery, especially in Europe, cannot take the strain of additional regulation. Measures on the table, including formally identifying 28 banks, are ill-targeted and are in danger of backfiring, they add.

Barclays, in its response, estimates that global banks would have to fork out €271bn ($393bn) in capital to meet the existing Basel III accord and additional 2.5 per cent capital surcharge endorsed by the Financial Stability Board. 

"[This will require] banks to retain more profits and/or reduce lending with knock on impact on economic growth and credit pricing," the British bank says.

BNP Paribas meanwhile says it is wrong to introduce new rules as a means to fix a crisis which was "mostly because" of poor supervision and risk management and the lack of a plan for winding up failed banks.

"The European economy is currently very fragile and dependent on the banks' ability to support it. It would be incomprehensible to penalise the development of the European banking market in these circumstances," it says.

In its response, HSBC bank warns that the identification of 28 institutions worldwide as systemically important could create "perverse incentives". 

"There is a real danger that identification of only a limited number of G-SIBs [global systemically important banks] will itself lead to market distortions, in particular the risk of there being a tendency for a severe concentration of depositor preference during any crisis," it says.

In total, 36 responses from organisations such as the Association for German Banks, Japanese Bankers Association and Institute of International Finance have been released by the Basel Committee. 

In its response, Barclays adds that ensuring that no bank is "too big to fail" can be achieved through incentivising them to produce credible recovery and resolution plans. A penalty capital surcharge should be applied to banks if these are deemed insufficient, it says. 

Royal Bank of Scotland admits that the G-Sifi additional buffer is likely already in an "advanced state". But it says there is a danger when combining this with Basel's capital conservation buffer, with distributions set at 40 per cent.

"This will effectively become a hard limit which, in practice, will oblige banks to hold a substantial management buffer above this, compounding wider economic effects and unintended consequences.

"The restrictions could also impede management from implementing recovery actions in a stress situation and restrict regulators' freedom of action."