LONDON Over-regulation will crimp economic growth and mistimed reform risks a double-dip recession, bankers are expected to warn this week as lawmakers mull a wide-ranging financial reform agenda.
Banks face new taxes, the introduction of "living wills" and requirements to hold more and better quality capital and liquidity to ensure there cannot be a repeat of the recent financial crisis, the worst since the 1930s.
Banks admit change is needed, but are resisting some proposals and are concerned about the cumulative impact of a raft of measures. They want more time to implement change, saying a fragile recovery will be derailed if lenders have to shore up capital just when governments are reducing support and economies need banks to lend more.
"There's a lot to play for here, not just for the banks but ultimately the return to economic growth and pension fund investment. And there's a lot that remains to be settled," said James Perry, a partner at law firm Ashurst in London.
Banks' lobbying efforts appear to be paying off.
Top countries on Saturday scrapped plans for a universal global bank tax in the face of opposition from Canada, Japan and Brazil, whose banks did not need public aid. New capital rules -- dubbed Basel III -- also look set to be phased in over a longer time than originally planned.
Some viewed that as pragmatic policy by lawmakers, rather than bowing to banks: the United States, Britain and other hard hit countries still look likely to impose a tax, while global reform can concentrate on Basel III, regarded as the litmus test of G20 resolve to toughen rules.
The Institute of International Finance (IIF), a bank lobby group representing over 400 firms, will unveil its estimate of the impact of measures at a meeting in Vienna on Thursday.
"There are a lot of moving pieces and the banks are saying you can't talk about one thing in isolation because they are getting hit from lots of different directions," Perry said.
"In order to reach a pragmatic solution that addresses moral hazard and allows the banks to lend and do business for the good of the economy you have to weigh all these things and calibrate them," he added.
COST OF RESILIENCE
The Basel III proposals could knock up to one percentage point off world economic growth, the head of the Basel Committee has estimated, saying that was a price worth paying to make a more resilient banking system.
Other industry estimates have suggested the impact of Basel and other reforms could be nearer 3 percent of GDP.
Europe's banks alone could suffer a 244 billion euros ($291 billion) hit from lost earnings and increased capital requirements, wiping 37 percent off earnings in 2012, Credit Suisse analysts estimated.
That's why banks are getting more vocal about the danger of uncoordinated action and will make their case ahead of a meeting of G20 leaders in Canada on June 26-27.
Key issues likely to be discussed by the IIF include:
--Resolution regimes. The IIF wants G20 countries to set up a task force to oversee the creation of cross-border bank "living wills", making it clear that bondholders will bear more of any losses when a lender hits trouble.
--Capital and liquidity. A more elastic phase-in beyond 2012 for various proposals appears inevitable. Bankers want more discussion on other issues, such as the treatment of minorities.
--Trading book capital. The IIF sees a U.S. proposal to ban proprietary trading as a blunt instrument and banks should instead hold more capital for riskier assets.
--Taxes on banks. There is no consensus on proposals, including a twin tax mooted by the IMF to cover future bailouts and to pay for the social costs of financial instability.
Bankers in Vienna will be led by Josef Ackermann, the Deutsche Bank chief executive who chairs the IIF.
Chairmen and CEOs from China's ICBC, Brazil's Itau Unibanco and Europe's HSBC, UBS, BBVA and Standard Chartered; central bankers from the ECB, India, Austria and Turkey; and senior politicians are also due to attend. ($1=.8375 Euro) (Editing by Jon Loades-Carter)