Reuters Sunday, June 27, 2004; 7:41 PM By Thomas Atkins
BASEL, Switzerland (Reuters) - The world's leading private international banking lobby on Sunday criticized new global banking safety rules drawn up by central banks as complicated and costly, saying they required more work to be effectively implemented.
The criticisms are likely to dampen the celebratory mood of the central bankers and regulators from the Group of 10 leading industrial nations who Saturday endorsed the rulebook known as Basel II in the Swiss city of Basel.
"Much remains to be done for Basel II to deliver the full benefits of a level playing field and risk-sensitive capital adequacy regulation," said the Institute of International Finance, the leading lobby of globally active banks.
Basel II, nearly six years in the making, overhauls global ground rules for how banks operate, including how much cash reserves are needed to withstand surprise financial shocks.
It now requires the approval of political bodies in the United States, Europe and elsewhere who must approve the code before it can be put into practice.
Bankers laud the accord as a revolution in regulation, rewarding cautious players and punishing risk-takers, and say it will strengthen the financial system and boost economic growth.
ACROSS BORDERS
But the IIF said its concerns about costs and complications in applying the new rules were heightened after the rulemakers -- who are grouped together in the Basel Committee on Banking Supervision -- in a surprise move modified the timetable for the rules' implementation.
In separate statements, the IIF and top U.S. lobby American Bankers Association urged regulators to eliminate country-to-country differences in the rules, which are designed create a level playing field for international finance.
"The accord can become costly and perhaps difficult to manage if banks are subjected, for example, to inconsistent interpretations, duplicative requirements for information, or repeated validation exercises by regulators," the IIF said.
Allowing big banks to use the same rules worldwide would introduce huge efficiencies for transnational banks, who must now report to each national regulator using different codes.
The IIF also said new rules over operational risk -- or the chance that rogue trader, terror attack or computer glitch stops business -- were "less than optimal" and required attention.
GETTING STARTED
Regulators, however, continued to praise the accord, the most important regulatory change to the financial sector since the original Basel Accord in 1988.
Bank of Italy Governor Antonio Fazio, speaking to reporters in Basel, where the rules were drafted, said the deal was a step forward. "It takes into account the evolution in financial markets and in financial instruments," he said.
Separately, Germany urged its banks to set to work applying the 239-page rulebook, which follows more than five years of discussions, sometimes ill-tempered.
"The implementation work that has already begun in most institutions should continue quickly and be brought to a successful conclusion," Bundesbank board member and bank supervisory head Edgar Meister said in a statement.
Meister said the European Parliament would be able to review and approve the European Commission's interpretation of the Basel guidelines by the fall of this year.
Big banks using the accord's most advanced methodology have until end-2007 to put the rules into place.
Tom Garside, managing director at consultancy Mercer Oliver Wyman, said the accord faced a rougher ride through the U.S. political process than in Europe, where the EU has long made it clear that all banks must use the new rules.