LONDON, England - April 25, 2010 - The United States is preparing to pivot from domestic regulatory reform to a push for a tough new international capital regime after the weekend’s G20 and International Monetary Fund meetings glossed over differences between leading economies.
On Sunday, U.S. Treasury Secretary Timothy Geithner met Mario Draghi, chairman of the Financial Stability Board, to discuss the contours of a system that would decide the safety and profitability of banks for decades to come and could eclipse the arguments over bank taxes and regulation.
But the different positions of senior central bank and government officials from several countries expressed to the Financial Times on the sidelines of the G20 meetings in Washington suggested that a final international agreement remains a challenge.
The G20 communiqué on Friday said, “We recommitted to developing by end-2010 internationally agreed rules to improve both the quantity and quality of bank capital and to discourage excessive leverage.”
But participants said little time was spent on the issue and that officials were gearing up for a battle at the June meeting over the direction of the new standards, which would prevent banks from relying on short-term funding and disqualify some assets from counting towards core regulatory capital, the highest-quality loss-absorbing part of the capital structure.
The most important fault line runs between a bloc of countries that includes the United States, the UK and Switzerland and one that includes Germany, France and Japan.
The first group is enthusiastically behind a substantial increase in capital ratios coupled with a more conservative assessment of what counts as capital, tough liquidity rules and a new simple leverage ratio.
The second group is more attached to the pre-eminence of the current risk-based approach and wants the leverage ratio to have a much less important role in governing banks’ balance sheets.
