World's top bankers warn against over-regulation

"Too tough" banking regulation will put a "drag on economic recovery" and cost upwards of 10 million jobs globally, the world's leading bankers have warned.

The Institute of International Finance (IIF) yesterday launched a determined counterattack against national governments wanting to "gold-plate" the new Basel III regulations with "arbitrary constraints".

The Washington-based body warned against unilateral actions to impose on banks fresh levies or even tougher capital requirements, or to bring forward the implementation of Basel III, which is not scheduled to be fully in force until 2019.

Such moves, it said, would add to the cost of raising capital in the financial system, which would in turn mean higher costs for households and businesses, less corporate lending, and less credit for international trade.

The IIF represents 420 of the largest financial institutions in the world.

Deutsche Bank chief executive and IIF chairman Josef Ackermann said an "over-reaction" by national regulators would jeopardise lending to the real economy: "There can be no doubt reforms will produce a drag on economic recovery, and this means jobs that should be created and that need to be created may not be created."

Peter Sands, chief executive of Standard Chartered, added that "the impact on the real economy could conceivably be as large or greater than our original assessment" of a loss of about 10 million jobs. "The stakes are hard to exaggerate," he said.

The IIF's move comes at a time when concern about a "jobless recovery" is intensifying. Some 30 million jobs globally have been destroyed in the recession. The bankers are also signalling resistance to moves to break up the biggest banks.

However, new regulatory reform proposals continue to be generated.

Also in Washington, another organisation, the Group of 30, chaired by Paul Volcker and including the Governor of the Bank of England, Mervyn King, wants governments to speed up the introduction of "macro-prudential" polices.

The aim is to prevent a repeat of the exponential and unsustainable growth in derivatives seen in the boom decade before the credit crunch.

- INDEPENDENT