New rules on global banks' interest-rate risks face delays: sources

Efforts to protect the world's banks from interest-rate risks are bogged down, with an agreement on new rules likely to be delayed by at least several months, people involved in the discussions said. 

PHOTO: REUTERS

3 Apr11:11 PM

[TOKYO] Efforts to protect the world's banks from interest-rate risks are bogged down, with an agreement on new rules likely to be delayed by at least several months, people involved in the discussions said.

Basel Committee negotiators have reached an impasse on the rate-risk requirements, two people involved in the process told Reuters, with Britain and Germany seeking requirements for banks to increase their capital, whereas the United States and Japan argue that the issue should continue to be left to local regulators.

"As the discussions are going now, reaching an agreement looks difficult," one source said of the talks in the Swiss financial centre.

As part of the response to the 2007-2009 financial crisis, the Basel Committee of banking supervisors has been toughening rules such as requirements for stronger capital buffers to prevent or combat future crises.

They are also planning rules to ensure banks can withstand sharp moves in interest rates, which are at historic lows around the world.

The issue takes on particular significance as the Federal Reserve is expected to raise US interest rates in coming months, with potential ripple effects for banks and markets worldwide.

But as the banking crisis fades in memory, only to be replaced by a lingering economic slowdown, governments are losing interest in financial reform and focusing on economic growth, despite warnings that dangers still lurk.

Mark Carney, governor of the Bank of England and chairman of the Financial Stability Board global regulator body, expressed concern in February about "reform fatigue," urging the Group of 20 big economies to mount a "big push" to complete rules requiring big lenders to issue bonds to provide further capital buffers.

There is also a growing spat between banks and regulators that ever increasing capital requirements are leading to illiquidity in some markets.

On the rate-risk rules, a "consultation document" was to have been agreed this month, but negotiators are now working to reach consensus in time for a June Basel Committee meeting, the sources said.

Basel Committee press officials could not immediately be reached for comment.

A compromise proposal would require additional capital only from "outlier banks" that have rate risk exceeding 20 per cent of their capital, but it is possible that the document will list both positions without resolving the differences, the sources said.

Japanese banks face rate risks as they have pumped great amounts of money into long-term project finance and have huge holdings of Japanese government bonds, which now have infinitesimally low yields.

REUTERS