"You can't leave the monkeys in charge of the bananas," supervisor argues on opening day of conference. After the carnage wrought by complex financial products during the crisis, banks will be expected to keep it simple - that was the message from two of the region's top regulators in a feisty panel discussion on the opening morning of the Risk Middle East conference in Bahrain today. "It's back to the boring stuff, back to basics - back to the old days of the industry, where banks took deposits and made loans," warned Khalid Hamad, executive director of banking supervision at the Central Bank of Bahrain, who went on to call for an accompanying change in the industry's culture. "We're entering a new regime of corporate governance, which will rest on strict avoidance of conflicts of interest, strict application of risk management independence, staying away from any abusive practices, more transparency - all that basic stuff that needs to be adhered to," he said. At one stage, Hamad searched for the right comparison to illustrate the ailment to which the industry had succumbed - it graduated rapidly from a cold to the flu, before audience members started calling out their own suggestions: pneumonia, tuberculosis, swine flu. But regulators didn't have it all their own way. Moderating the panel, Dean Rowan, chief risk officer at Bahrain-based Gulf One Investment Bank, called for a different response: "We can't go back to basics. What we really need is to understand what we're doing - we need management to support us, to allow us to understand the issues." And the mood turned against regulators in the question-and-answer session which followed, with audience members asking whether supervisors had been "negligent or ignorant" to allow risk concentrations to build unchecked prior to the crisis. Ali Masaad Al Amari, senior director of banking supervision at the Qatar Financial Centre Regulatory Authority, admitted the watchdogs hadn't covered themselves in glory: "We have to learn, to work, we have to rethink. But today all regulators are speaking the same language. Why? Because we were playing with fire." In the same way that banks will now be expected to go back to basics, so will regulators themselves, the panel agreed - rules will become cruder, simpler and, as a result, harder to evade than the sophisticated but fragile architecture of Basel II. The leverage ratio and new capital quality rules being finalised as part of the Basel III package were cited as examples: "Let's hope we don't need a Basel IV or Basel V," Al Amari said. Speaking on the sidelines of the conference, though, it was clear where one senior regulator placed most of the blame: "The crisis taught us you can't leave the monkeys in charge of the bananas. And a monkey in an Armani suit is still a monkey."...
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