The scramble for capital: Regulation - An uneven playing field
One of the challenges facing policymakers is to ensure that there is consensus about the regulatory framework that the banks in all regions operate under.
The financial crisis has served to sharpen divisions, especially between Europe and the US, about the best way that bank risk should be assessed and measured. The Basle II capital adequacy framework has come under attack from several senior US officials, including Sheila Bair, chair of the Federal Deposit Insurance Corporation. She has always argued that Basle II would lead to banks holding less capital against their risks.
The lack of agreement over Basle II meant that, while European banks and those in other countries adopted the rules in 2007-08, they have still to be implemented in the US. The US banks are not required to apply the rules until April 2011.
Now, with the Basle Committee and the EU issuing more proposals for reform, particularly relating to trading book risk and securitization products, some bankers are concerned about how the measures will affect their firms’ competitiveness.
"What we have to be extremely careful about is that there could be a distortion of the playing field in that the Basle Committee has its own thoughts and the EC seems to be speeding ahead while the US seems to be late to the process," says the chief financial officer of a leading European bank.