Banks see benefits to college of supervisors plan

By Huw Jones

BRUSSELS, April 14 (Reuters) - Big banks welcome a decision by G7 policymakers to set up "colleges of supervisors" to track them more closely but caution that success will depend on U.S. reforms and how well regulators work together.

The Group of Seven gave the green light to over 60 recommendations at the weekend on how to make the world's financial markets less risky and help avoid a repeat of a credit squeeze that began last year with defaults on U.S. home loans.

Steps include tighter supervision of how top international banks handle complex mortgage-backed investments that have tumbled in value, forcing banks to make huge writedowns -- so far totalling about $200 billion -- that unnerve investors.

Bank supervisors from countries that oversee a cross-border bank would liaise with each other and more directly and regularly with banks on key issues such as risk management.

The aim is to spot problems before they get out of hand. About 20 to 25 banks, from Merrill Lynch MER.N and Morgan Stanley (MS.N) to Deutsche Bank (DBKGn.DE) and UBS (UBSN.VX) would be affected.

"This is something the European Banking Federation has been promoting and pushing in the European area. We have similar difficulties with cross-border banks that have outgrown the national remit of supervisors," said Robert Priester, EBF's head of banking supervision.

But regulators would need to build up trust outside times of stress so that they can share information speedily without feeling their sovereignty was threatened.

"If you want colleges just for times of stress, then I don't think that is the way forward," Priester said.

The London Investment Banking Association (LIBA) agreed.

"We would be happy to support anything that enhances relationships and working knowledge outside the stress situation, which will put you in a strong situation when at some point you are facing an unwanted situation," said Katharine Seal, a LIBA director.

"In the middle of a financial crisis is not the best time to get logistics sorted out for the first time," Seal added.

RIGHT FRAMEWORK Colleges of supervisors are not new.

Regulators from Belgium, the Netherlands and France cooperate in overseeing cross-border banks like Fortis (FOR.BR), or stock exchange NYSE-Euronext (NYX.PA).

Earlier this month, EU finance ministers agreed to set up colleges to meet when there are financial stability concerns over cross-border banks.