LONDON, June 29 (Reuters) - The British Bankers Association are holding their annual international conference with speakers from the government, regulators, Bank of England and banks.
Following are highlights from their speeches:
On implementing global bank capital rules in EU:
”As you know, the Capital Requirements Directive will implement Basel in the EU. We must resist attempts to unpick Basel at this stage. It’s incredibly disappointing to hear mutterings of discontent and resistance on the implementation of Basel, including from some G20 signatories.
”That’s why we should adhere strictly to the Basel definition of Core Tier 1 capital. The market trusts these instruments to absorb losses, expects Core Tier 1 to be defined as ordinary shares and expects all banks to be capitalised on the same basis.
”Nor should banks be able to double count capital held in insurance subsidiaries, beyond the very generous concession already agreed. So in Europe we should stop the alternative approaches to counting of insurance capital that are allowed under the Financial Conglomerates Directive. And weak capital instruments should not be grandfathered as equivalent to the new Core Tier 1 standard.
”So we would be failing taxpayers if we retreated from strong capital standards. Of course, it is well understood that there needs to be a special regime for mutuals, that are not able to issue ordinary shares.
”And finally, it means that we should implement Basel as the minimum standard across the EU, not the maximum. Jurisdictions should retain the right to apply higher levels of regulation to ensure financial stability.
”Maximum harmonisation would limit the ability of national regulators to impose requirements to reflect the unique risks and characteristics of their home markets.
“Maximum harmonisation would also severely undermine the ability of national regulators to tackle macro risks unique to their markets.”
On UK bank capital levels:
”Crucially... the Financial Policy Committee asked the regulators to ensure that, in the quarters ahead, banks should build their capital resources by retaining more than usual of their profits when profits are buoyant. Although the FPC does not yet have statutory powers, this was a sizable step away from the role played by the Bank over the past decade or so. It is not a sermon. It is a plan.
“These will be meaningful discussions, and Financial Services Authority will report back to FPC on progress.”
On UK banking commission’s recommendations:
“Most far-reaching enquiry into the structure of banking in living memory. It will influence relations between bankers and politicians for the next decade. If arguments against ring-fencing are strong and persuasive, we should not implement them.”
DOUGLAS FLINT, CHAIRMAN OF HSBC (HSBA.L)
On China’s renminbi:
”The internationalisation of the renminbi is dramatically underway. We estimate that by 2015 one third of trade settlement will settle in the RMB.
“The Middle East, Africa and much of Latin America increasingly sees the RMB as their natural second currency and I see that continuing. That will inform the timing of when China wants to open up its currency more generally. We think over time it will take its place among the reserve currencies of the world ... and there will fundamentally be three reserve currencies.”
HECTOR SANTS, CHIEF EXECUTIVE, FINANCIAL SERVICES AUTHORITY
On national discretion to top up bank capital levels:
“We need to be able to tailor the capital and liquidity proposition to specific risks that firms face... This is a specific flexibility we need to retain.”
On European Union bank stress tests:
”In early June the EBA provided banks additional guidance in a number of areas to address inconsistencies and excessive optimism. The guidance covered a number of areas including funding costs, risk weighted assets and interest income in the trading book and exposures to sovereigns and financial institutions.
”On the latter point, we updated the haircuts to sovereign exposures in the trading book where market developments have overtaken the scenario and we clarified that although no haircut to banking book exposures is required all banks are expected to hold provisions against sovereign debt in line with current regulatory practices.
“Importantly, we set a floor to sovereign risk parameters based on publicly available information, such as external ratings... We believe our approach is appropriate in the current circumstances and importantly complemented by extensive and detailed disclosure of positions by country, accounting book and maturity which we are aware will be used by market analysts to undertake their own analysis.”
“We are still receiving resubmissions of the results by the banks and in the coming days we will look at the quality of the data. At that point we will be in a position to estimate when we can realistically publish the data... the result has not yet been put together.”
Single EU rulebook for banks:
“My understanding is that the legislative proposal that the (European) Commission will put forward will contain provisions calling the EBA to draft technical standards in more than forty areas. We will have to ensure that all member states have exactly the same rules on the definition of capital. We will have to develop the technical standards for liquidity requirements... Finally, we need to ensure that the same rules apply in the area of compensation practices to avoid the possibility of lax or weaker standards being adopted in a competitive fashion, to attract the best human resources from other jurisdictions.”
On national discretion to top up bank capital requirements:
”There are already now in several countries higher capital requirements and I am not questioning that.
”The point is that the EU will have to develop a European framework according to which this is done in a sort of common framework, discussing, coordinating. and exchanging views on how this should be done.
“We need to have a framework, possibly at the global level, surely at the European level, which allows to bring these types of questions to the same table. This flexibilty needs to be there but in my view should be constrained discretion.”
”Banks cannot and never will be risk free. The idea of risk free banking is an oxymoron. The current depressed share prices of Western banks reflect the nervousness and uncertainty of investors as to where the final decisions in this extended round of regulatory reform will end up. More capital may reduce the probability of a bank failing but it can never reduce this probability to zero. And talk of bank investors being prepared to accept utility-type returns is completely unrealistic.
On payment protection insurance mis-selling:
“In many instances we got things wrong and we let our customers down. While regrets are important... they are not going to be enough to win back trust. We will only rebuild our reputation with customers when we demonstrate we are working hard on their behalf... and we match the right products for their needs.”
ANGELA KNIGHT, CHIEF EXECUTIVE, BRITISH BANKERS ASSOCIATION
On planned ringfencing of retail activities:
“We and others see the potential for unforeseen consequences, such as on funding costs... How does a regime proposed here fit into the international context when other jurisdictions are not considering such a move.”