- Title: UK: Finance ministers continue to arrive for talks in St Andrews
- Date: 7th November 2009
- Summary: ST. ANDREWS, SCOTLAND, UNITED KINGDOM (NOVEMBER 6, 2009) (REUTERS) ***CONTAINS FLASH PHOTOGARPHY*** GERMAN FINANCE MINISTER WOLFGANG SCHAEUBLE ARRIVING, APPROACHING PRESS WITH WHEELCHAIR SCHAEUBLE ENTERING HOTEL PAN OF HOTEL FAIRMONT BY NIGHT, PRESS GATHERED OUTSIDE ENTRANCE OFFICIALS AT ENTRANCE INDIAN FINANCE MINISTER PRANAB MUKHERJEE ARRIVING AND ENTERING HOTEL (S
- Embargoed: 22nd November 2009 12:00
- Keywords:
- Topics: International Relations,Finance
- Reuters ID: LVA7IM3O6U781IX6H8F352UNX0IP
- Story Text: Finance ministers from the world's big economies launch difficult discussions this weekend on how to deal with banks whose failure could destabilise economies. Any blueprint is likely to take many months to thrash out.
They are also looking for a way to finance the fight on global warming.
"We'll be talking about how to provide the finance for tackling climate change, as a contribution to the crucial summit next month in Copenhagen, and we'll be looking to launch a framework for growth, and a process for countries to provide mutual assessment of each other's economic plans, including the plans for withdrawal from stimulus, becasue everybodt recognises that we don't want to withdraw stimulus too early, there's a risk there," UK communications minister Stephen Timms said.
Governments in Europe and the United States have ploughed hundreds of billions of dollars of taxpayers' money into shoring up banks because they fear letting the banks fail could be disastrous. They want to avoid doing this in future crises.
So finance ministers and central bank chiefs from the Group of 20 nations, meeting in Scotland this weekend, will seek to clamp down on "moral hazard" -- banks taking risks because they assume they will be bailed out if they get into trouble.
The FSB, made up of treasury, central bank and regulatory officials from G20 countries, was asked by G20 leaders in September to present proposals by October 2010 that may include requiring important banks to maintain especially high capital and liquidity levels.
Banks are urging regulators to avoid focusing on size only and want a common, global approach to the issue, but countries have already begun taking unilateral steps.
In the United States, there are plans for a powerful resolution authority that could break up firms deemed too big or risky.
Meanwhile, Canada has been stressing the concept of "living wills" as a key tool for tackling moral hazard.
The September G20 meeting set an end-2010 deadline for major financial firms to develop such contingency and resolution plans, which would let them be wound up quickly if necessary with minimum disruption to markets and depositors.
Several major banks in Britain are already drafting living wills as part of a pilot programme.
Britain's Financial Services Authority said this week it expected clashes with banks over living wills, and it has warned it may act to simplify corporate structures if a living will appears unworkable.
Around the world, however, many other questions remain unanswered about the idea of living wills, such as who would decide a bank was important enough to the financial system to require a will.
An effective living will would have to include some sort of ringfence between risky activities and depositors. This could change the bank's credit rating and stock market value, as some internal services and cost savings could be affected.
Deutsche Bank chief Josef Ackermann said this week that if the content of a living will became public, it would be an open invitation to corporate raiders.
The European Union is also concerned that the single capital market, which encourages integration, should not be fragmented if living wills created divisions and inefficient use of capital across the bloc's 40 or more big banking groups.
But fragmentation may be the price paid to create a less risky system as bank branches come under pressure from national governments to become fully fledged subsidiaries, with their own capital and liquidity requirements.
Britain has ruled out legislation similar to the old U.S. Glass-Steagall Act that would legally separate risky investment banking from commercial banking operations. But higher levels of capital and tougher liquidity requirements could have much the same impact. - Copyright Holder: REUTERS
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