Top bank regulator moves to defuse bank reform criticism

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The head of the top international banking regulation body sought Monday to defuse industry criticisms of its new Basel III reforms, saying that the tougher rules will ultimately benefit banks.

Mario Draghi, who chairs the Financial Stability Board, pointed to a study oo the impact of the new rules on banks which found that it was "limited."

"The macroeconomic impact of this capital surcharge per se is very limited on GDP growth and it is way outweighed by the benefits that the system would reap from having stronger banks, especially the bigger banks," Draghi said after an FSB meeting.

Basel III requires banks to raise their high-quality, easily accessible, core common equity to 7.0 percent of total assets from the current 2.0 percent.

In addition, to address the issue of systemic importance, regulators are asking 28 of the world's biggest banks to set aside 1.0 to 2.5 percentage points more in Tier 1 capital.

If these large banks were to increase their size substantially, they would be required to set aside a further 1.0 percentage point.

The measures were approved at Monday's FSB meeting and will be presented to November's G20 summit in Cannes, France.

However, some in the banking industry fear that the new capital rules will hit profits since they will force the lenders to hold more money in reserve rather than put it to work.

JP Morgan Chase chief executive Jamie Dimon called the new rules "anti-American" in an interview with Financial Times.

"I'm very close to thinking the United States shouldn't be in Basel anymore," Dimon said.

"I would not have agreed to rules that are blatantly anti-American," he said. "Our regulators should go there and say: 'If it's not in the interests of the United States, we're not doing it.'"

Draghi also noted that the interbank market -- where banks source short-term funding from each other -- "needs to go back to functioning well."

"There is no question that risk aversion has increased dramatically in the last few months," he noted, referring to tighter conditions in the key market for the banks as the eurozone debt crisis drags on.

To end risk aversion in the market, "one needs a set of actions at the bank level -- stronger rules, stronger capital and liquidity levels," he added.

© 2011 AFP

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