G-20 and FSB split on scale of financial reform

Members of the Group of 20 (G-20) leading economies and the Financial Stability Board (FSB) – the body tasked with reforming the global financial system alongside the Basel Committee on Banking Supervision – are split on how far financial services reform should go in the pursuit of better financial stability.

"There are different schools of thought, even among the members of the FSB and Basel Committee," Jong-Goo Yi, standing commissioner of the Financial Services Commission for South Korea, told delegates attending the Asian Financial Forum in Hong Kong. "[One group believes the] loss-absorbing ability of banks has to be greatly improved. We recognise the importance of capital, but let's not forget to balance it appropriately against credit growth, particularly for growing and developing economies."

Policymakers are working on an aggressive series of reforms, including closer scrutiny of systemically important financial institutions, the beefing up of capital requirements and the introduction of capital buffers and leverage ratios, to ensure the financial system is better insulated against shocks similar to those that sparked the ongoing global financial crisis.

"During the first half of this year, there will be a quantitative impact study taking into account various elements of new reform measures and how they will affect the overall balance sheet of banks," says Yi. "Then, during the second half, based on the quantitative impact study, there will be a calibration of various capital, including regulatory capital requirements, the leverage ratio and capital buffer."

Yi said disagreement between the two camps is likely to result in a "hard fought" battle, but said he hoped the next G-20 summit in Seoul in November would "give some concrete guidance on that".

When questioned about whether or not new rules could have a detrimental impact on banks' ability to finance economic growth and development, Japan's vice-minister for finance and of international affairs, Rintaro Tamaki, said both the Financial Services Agency and other parts of the Japanese government are concerned about the impact of tougher new rules on the wider economy.

"We have not yet worked out the true impact on the industry," said Tamaki. "We have to address each agenda discussing the finance regime one by one with due attention to the total impact of that during the course of 2010 and 2011, before introducing the measures."