HSBC strategy chief warns of dangers of 'over-regulation'

Regulators must be careful not to damage the profitability of the financial services sector by excessively increasing capital and liquidity requirements, according to Antonio Simoes, group director of strategy at HSBC.

Speaking at an Ernst & Young symposium, Opportunities in adversity - the new financial services landscape, in London yesterday, Simoes said HSBC broadly welcomes the increasing of capital and liquidity requirements after the financial crisis, but expressed concern about the consequences of some of the proposed regulatory changes.

"We need to stress that the profitability of the provision of financial services is key for the sustainability of the system. That's an obvious point, but many people don't realise higher regulatory requirements will lead to more capital, more expensive capital and ultimately more expensive financial services," Simoes said.

While supporting the introduction of counter-cyclical capital buffers to be built up during good times and drawn on during a recession, he stressed the importance of making sure any buffers are truly counter-cyclical. "If not, we're just adding more and more capital in the good and the bad times and therefore we get to an unpopular level of capital," he said.

Simoes's speech came as European finance ministers in Brussels were discussing pro-cyclicality at their monthly Economic and Financial Affairs Council. The Council stressed that the absence of counter-cyclical buffers and the lack of flexibility in accounting rules to allow through-the-cycle provisioning for loan losses had been "important factors in the amplification of the financial crisis". It said it welcomed a revision of accounting rules and called on the European Commission, in co-ordination with international agencies such as the Basel Committee on Banking Supervision, to draft rules for the build-up of capital buffers.

Simoes also criticised proposals to break up the investment and retail banking parts of large financial institutions, as the US attempted to do with the Glass-Steagall Banking Act of 1933. "We are in an age where banks are interconnected, profits are interconnected and our customers want a range of products across the entire spectrum of financial services. The idea that we can simply do something similar to Glass-Steagall in my mind is fantasy," he said.

Lastly, he expressed his belief that splitting up those banks considered too big to fail - which would certainly include HSBC, with its 315,000 employees and presence in 87 countries - would be pointless. "I think it is unrealistic to think we can split banks down to a level that they become [small enough to be allowed to fail]," he said.

See also: HSBC seeks to raise £12.5 billion from shareholders
Dynamic provisioning on the agenda for European banks
Turner: Capital and liquidity are core of bank regulation