US plans could undermine global bank reforms

LONDON/HONG KONG • US plans to delay globally-agreed reforms to make banks safer after the financial crisis will throw a system of international regulatory cooperation into confusion, said European Union and Asian regulatory sources.

But the rollback will be welcomed by global banks as it will allow them to cut back on how much expensive capital they must hold to support their business, the sources said on Tuesday.

Since the financial crisis, watchdogs around the world have been working via the G-20 group of leading economies to increase cooperation between regulators, following the collapse of Lehman Brothers in 2008.

But the United States Treasury unveiled plans on Monday to upend the country's financial regulatory framework in a 150-page report that suggested more than 100 changes.

"Trump's proposals are going in the wrong direction," Mr Jakob von Weizsaecker, a German Social Democrat in the European Parliament's economic and monetary affairs committee, told Reuters. "In Europe, we must be careful not to forget the lessons of the financial crisis. It would be a huge mistake for us to follow the US lead on this."

The US Treasury has called for a delay in implementing a globally agreed rule on bank liquidity which requires banks to cover long-term funding needs from January next year. It also wants to delay a fundamental review of banks' trading books, which was also agreed globally through the Basel Committee of international regulators.

This review represented a major overhaul of how banks set aside capital to cover risks from stocks, bonds and other instruments kept in their trading businesses.

The US Treasury said these two rules would have added new capital and liquidity requirements to existing rules banks have to follow.

The EU has already proposed a draft law to implement these pieces of regulation.

"This raises some question marks. It's a bit worrying," an EU source said.

The Basel Committee could not be reached immediately for comment.


A version of this article appeared in the print edition of The Straits Times on June 15, 2017, with the headline 'US plans could undermine global bank reforms'. Print Edition | Subscribe