Bankers' gathering to offer glimpse of reform plan
NEW YORK (Reuters) - Four months after pledging an industry-led response to the credit crisis, some of the world's top bankers will meet in Rio de Janeiro next week and offer the world a first glimpse of their plan.
The chief executives of Deutsche Bank AG (DBKGn.DE) and Spanish bank BBVA (BBVA.MC) will be among the headliners at the meeting at the beachfront Copacabana Palace hotel, a traditional haunt of royalty and rock stars.
Since the top international bank lobby acknowledged responsibility at a meeting in October for the subprime crisis and its members promised to reform, things have, if anything, gotten worse for the industry.
Banks, brokerages and insurers have written down more than $150 billion in bad assets -- many of them linked to the cratering U.S. subprime mortgage market -- and the latest estimate by UBS analysts put the total price tag for the crises at $600 billion, with banks and brokerages responsible for more than half of that.
Financial regulators and central banks recently called for market-led solutions for what they said was a lack of transparency and disclosure at banks. The question now is whether the Institute of International Finance (IIF) can come up with solutions that look credible to regulators.
If they can't, the regulators have suggested they will come up with solutions of their own.
"They are looking to us with a certain sense of expectation and we're going to develop some credible, pragmatically formed ideas," IIF Managing Director Charles Dallara told Reuters, adding that the Rio conference will offer only a preliminary glimpse of those ideas, which would need to gain the support of its member banks.
'ORIGINATE-TO-DISTRIBUTE'
The proposed reforms will likely include strengthening board oversight and forming risk committees, he said.
The lobbying group also may address the so called "originate-to-distribute" model, under which the mortgage brokers and banks who lend money rarely keep that debt on their balance sheet. That has fostered an environment in which the lenders have lowered their standards, knowing they will not be held responsible if the loans they approve ultimately go bad.
"Those crises are based on people taking a lot of risk and hoping they can dump them before they come to fruition and collect fees up front," said Edward Kane, a professor of finance at Boston College, who consults for the World Bank. "You really need ethical reform in the industry itself so that people take more fiduciary responsibility."
In a clue ethics are on the IIF's agenda, Francisco Gonzalez, the head of BBVA and a speaker at the conference, has called for banks that issue securitized assets to keep some of the risk on their balance sheets and explain how they calculate valuations.
Still, the need for consensus among members may limit the IIF's ability to push dramatic reforms.
"It is a group of banks and when banks speak they usually speak with their bottom line in mind," said Jerry Caprio, a professor of economics at Williams College. "They may propose steps for regulatory reform right now because they're worried that there may be a number of regulatory moves made in the wake of this crisis that they don't like."
Bank executives are not the only ones who will be weighing in on the crisis. Regulators ranging from Federal Reserve Bank of Kansas City President Thomas Hoenig to the head of Germany's banking watchdog, Jochen Sanio, are also expected to appear. Continued...
