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G20-BoE's Carney urges 'big push' on bank rules, worries over reform fatigue
[ISTANBUL] Bank of England Governor Mark Carney has urged the G20 to mount a "big push" to implement global regulatory reforms, fearing that governments may be tiring of non-stop rulemaking since the financial crisis six years ago.
Mr Carney was speaking ahead of a meeting of finance ministers and central bankers from the Group of 20 economies (G20), whose regulatory task force, the Financial Stability Board, he chairs.
Since Lehman Brothers bank crashed in September 2008, the FSB has coordinated a welter of new banking and markets rules to make the financial system more resilient to shocks.
In recent months, however, governments have switched focus away from financial stability to reviving economic growth, dampening some of the reform momentum.
The G20 meeting in Turkey's financial capital this week will kick off discussions on whether there are "unintended consequences" from all the new rules. Banks are pushing for changes, arguing that the combination of so many rules is making lending and trading too costly at times. "I worry about reform fatigue, not surprisingly, both at the FSB and more generally," Mr Carney said at an Institute of International Finance meeting ahead of the G20 gathering. "Many of the toughest reforms are micro reforms that can have big political coalitions against them and have payoff very far into the future," he said.
One of the biggest reforms, signed off in principle by G20 leaders last November but yet to be finalised, is under attack from banks.
Under the reform they would be forced to hold a large new buffer of bonds that could be turned into equity to shore themselves up in times of trouble without having to rely on taxpayers, as many did in the financial crisis.
Mr Carney has said the reform is crucial to ending so-called"too big to fail" banks.
The FSB has sought to keep regulatory momentum going by reassuring governments that the bonds plan is the last major reform, with the main focus on applying all the agreed rules. "This is the year of implementation... We want to have a big push on this," Mr Carney said.
Making financial derivatives like swaps traded among banks more transparent was still far from done, Mr Carney said. "There's been progress on central clearing but not yet enough, and then we look towards moving standardized contracts onto exchanges; it's just not yet sufficient," Mr Carney said.
Mr Carney said that although the financial system was less likely to amplify initial shocks than in 2008, there was no room for complacency about its resilience.
Cost effective cross-border banking was becoming "extremely difficult", partly because of having to comply with anti-money laundering (AML) and counter-terrorism financing (CTF) safeguards, Mr Carney said. "We are in a situation where we run some risk of financial abandonment, if you will, that we would have countries or a series of institutions effectively cut off from the global system because global institutions cannot cost-effectively assess AML/CTF risk," Mr Carney said. "So the question is what can we do, from the public sector working with industry, to make that more efficient, more cost-effective," Mr Carney said.