LONDON Nov 28 Regulators should complete work
on new their bank capital rules without diluting them otherwise
it would be harder to draw a line under the financial crisis, a
global central banking official said on Monday.
Claudio Borio, head of the monetary and economic department
at the Bank for International Settlements, a forum for central
banks, said the balance sheets of some lenders have still not
been wiped clean of bad loans nearly a decade after the
financial crisis began.
That crisis prompted world leaders to introduce tougher bank
capital requirements, known as Basel III, which regulators will
seek to complete at a meeting on Monday and Tuesday in Chile.
The remaining elements of Basel III face stiff opposition
from European Union policymakers, concerned they will bump up
capital requirements and crimp lending.
"For their part, prudential authorities should complete the
financial reforms without delay, notably Basel III," Borio told
a meeting of the EU's European Banking Authority on Monday.
"And in the process, they should not succumb to the pressure
to dilute standards and should redouble efforts to repair
balance sheets," Borio added.
Research from the BIS showed that lending growth was higher
for banks with higher capital ratios, Borio said.
Borio said this widespread scepticism about banks' health,
as reflected in their valuations, has lead to rapid growth in
market-based financing, with asset managers growing in leaps and
"That said, probably the most important reason for the
current woes has been a policy response that has failed to
induce sufficient adjustment," Borio said.
He singled out Italy where banks hold about 330 billion
euros ($350 billion) in troubled loans, equivalent to a fifth of
the country's economic output.
"Within this general picture, at least one banking system in
Europe, Italy's, has been facing serious strains, handicapped by
a crippling pile of bad debt," Borio said.
Monte dei Paschi is trying to raise five billion euros to
bolster its capital buffers.
Regulators have put in place new rules to avoid taxpayers
having to bail out failing lenders, but Borio said it would be
imprudent to assume that these rules are foolproof.
"And when establishing a balance between private sector and
public sector involvement in addressing systemic crises, it is
essential to bear in mind that public sector support may be
necessary," Borio said.
($1 = 0.9388 euros)
(Reporting by Huw Jones, editing by Louise Heavens)