Tighter regulations on banks, hedge funds and rating agencies would be supported by most business leaders around the world, a survey found this week.
The survey of 735 chief executives, chairmen and directors, conducted by law firm Allen & Overy, found 76% support better regulation of rating agencies - particularly strong in the US and Asia - and 66% support better hedge fund regulation. Sixty-seven per cent wanted better transparency and more regulation of complex structured products. Although 79% wanted national regulators to be restructured, there was no consensus on proposals for a single global regulator.
Capital adequacy and accounting rules also came in for criticism -50% of respondents thought the Basel II rules should be "comprehensively rewritten" against only 16% that disagreed, with 59% wanting tighter restrictions on off-balance sheet accounting -although only 21% backed the complete abolition of mark-to-market accounting. Sixty per cent backed a global standard for liquidity accounting.
One market participant commented: "At present, bank liquidity is highly dependent on the individual central banks - so it will be hard to develop global liquidity standards." Another area of pressure, he added, could be the accounting distinction between the trading and banking books - assets held on the trading book are assumed to be relatively liquid and so attract lower capital requirements, but this has created an incentive for banks to push the limits of what can legitimately be held on the trading book. "There is a poor distinction between the trading book and the banking book. I wouldn't be surprised to see more pressure on that split."
On November 12, the European Commission outlined its own position on reforming rating agencies, including better internal oversight and controls against potential conflicts of interest. And the EC, the Basel Committee, and national regulators around the world have been hastening to outline their own proposals for reform in their various areas of responsibility. But this might not be altogether a good thing, the market participant suggested: "The more sources you have, the greater the risk of inconsistency, if you have different organisations moving at different speeds - that you have the EC and the Basel Committee doing different things, for example, is a bit of a problem."
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