Survey shows firms in favour of tighter regulation

Firms also united on the need for systemic risk regulator, but regional attitudes vary widely

STAMFORD, CT - While global financial institutions on the whole support tightening regulation of systemic economic risk, hedge funds, derivatives and securitisation, clashes in regional attitudes are weakening the prospect of a global consensus on how to supervise systemic risk, a survey has revealed.

Market research firm Greenwich Associates surveyed 458 asset managers, banks and pension fund managers in North America, Europe and Asia for their opinions on how governments and regulators have performed since the start of the global financial crisis.

The survey found "consensus that the current regulatory framework has been proven inadequate and must be rebuilt". But although more than two-thirds of European and Asian companies favour the formation of an overarching systemic risk regulator, the same idea only attracts support from around 40% of their US counterparts.

"While these important private sector entities recognise the need for reform, the details of the new regulations will determine their ultimate reactions," said John Colon, a consultant at Greenwich Associates. "Companies and institutions are willing to support reforms they see as smart, effective and fair, but they are ready to oppose regulations they perceive as overly blunt, broad or politicised."

In the US, the Federal Reserve was the most popular choice for a single systemic risk regulator, with only seven per cent believing the US Treasury should have such powers.

Almost two-thirds of European respondents believe the proposed European Systemic Risk Council or any other systemic risk regulator should be granted the power to implement policies directly instead of acting in a purely advisory capacity.

The survey also found broad support for stricter hedge fund regulation. Some 58% of financial institutions backed efforts to increase regulatory supervision and control over hedge funds, while nearly 65% said they favoured shifting to more exchange-based trading from over-the-counter trading of derivatives. The level of support for such a migration was even higher, at 70%, among US respondents.

Proposals to centralise clearing of OTC derivatives trades won almost 70% support worldwide in the survey. And almost half of those polled supported renewing regulatory separation of investment banking and commercial banking within financial firms.

The survey also revealed support for preventing loan originators from selling off entire amounts of asset-backed or mortgage-backed securities by requiring them to hold a minimum proportion of new issues. Almost 65% globally backed such measures, with only 18% opposed.