International political interests and complex risk management strategies will be addressed in Switzerland next month, as regulators around the world will try, once again, to reach an agreement on new administrative regulations for the banking system which will help to prevent the next global financial crisis.
The challenge is so high as the leaders of the U.S., Germany, France and Japan will have a direct involvement in the creation of the new international banking rules. The result will inevitably affect the profitability and structure of the largest banks in the world, as many of them have postponed important decisions until the new regulations arise.
The involved parties have engaged in a race in order to prepare everything in time during the meeting in mid September in Basel. If there end up to an agreement, the new banking regulations will be presented to the G20 leaders meeting in November in South Korea.
Discussions and negotiations are focused around the following issue: how much capital should be maintained by banks in order to be able to absorb losses of high risk loans and other failed investments.
Many organizations which are monitoring the markets believe that the financial crisis has indicated that large banks did not have enough reserve capital to protect their institutions against debts surge.
The determination of the appropriate levels of capital is proved a particularly difficult calculation, as the major financial institutions have a presence in many markets, have different structure and follow regulations set by the local regulators.
Officials of the Basel Committee on banking supervision do not expect that every country will adopt exactly the same standards. What they seek is harmonization of regulations. These sounds fair, but the French did not like the reforms of the Americans. Neither the Germans and Japanese and Danes had their own objections. On the other hand, Australians and Canadians do not want to implement new, untested rules that essentially designed to address problems in Europe and USA.
At the meeting of September there are two main issues: the level of capital adequacy and the time to be given to banks to adopt new regulations.
