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Regulation: IIF fears impact of regulation on Latin American banks

Universal capital requirements might hinder banks; Investors less concerned about risk

The Institute of International Finance believes that Latin America’s strong performance in the past economic crisis shows that the region is well placed to withstand downturns and that new international banking rules might damage its economic prosperity. Speaking at the launch of the IIF’s annual Latin American Regional Overview, Rich Waugh, vice-chairman of the banking lobby group’s board of directors and president and chief executive of Scotiabank, said: "We definitely support the need for an improved regulatory framework and that includes bank capital where necessary, but that should not mean that well-managed banking systems should be suffocated for some rules that were prescribed for other economies and other business models."

Waugh says that imposing universal capital requirements on banks in Latin America, where output jumped 6.1% last year following a relatively shallow and short reversal of 2.2% in 2009, could limit the potential for growth in the region. "A key concern is that the huge levels of capital and liquidity required going forward, as well as very prescriptive changes in the definition of capital, have the potential for stifling growth," said Waugh. "Many new regulatory burdens are being introduced and there is no question that they have economic impacts.

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