Global banking regulators are expected to work out new rules aimed to control too-big-to-fail banks in the lead up to the Group of 20 summit in Seoul in November, Korea’s top watchdog official said.
They will be part of an extensive set of global banking rules likely to be approved by the leaders of the rich and emerging market countries, which the Korean government wants to be named as Seoul Accord or Seoul Initiative.
“The details of new regulations on global big banks will be further discussed in Seoul,” Financial Supervisory Service governor Kim Jong-chang told The Korea Herald.
On Sept 12, the Basel Committee on Banking Supervision announced new capital rules agreed by 27 members. The main elements of the proposal aims to improve the quality of capital constituted especially under Tier 1 and introduce capital buffers to increase the loss-absorption capacity of financial institutions.
It also tackled the too-big-to-fail problem by demanding banks to rely more on non-risk based leverage ratio for their operation.
The 137th meeting of Basel Committee on Banking Supervision and the sixth meeting of Financial Stability Board will be held in southern Seoul on Tuesday and Wednesday, respectively.
Kim said that mega-scale banks dubbed “systematically important financial institutions” will face closer monitoring by global regulators.
He said the FSS and the Basel Committee are scheduled to draw up a draft of the joint communiqu which will be announced during the G20 Seoul Summit, slated for Nov. 11-12.
“Basic directions have already been fixed in the past meetings. Now we will exchange views to set up details for the basic directions capital standard, cash flow standard and leverage standard.”
Stressing that crucial decisions will be made during the Seoul meetings, Kim predicted that the Basel III will be renamed after the G20 Summit.
“I proposed the BCBS participants make a new title or concept (of the new rules), telling them “a bigger umbrella” is needed to cover wider, comprehensive regulatory sectors,” he said.
He predicted that the countries and banks which violated the fresh rules will be subject to reprimand by the global market, saying the global rules will be stronger in any other times.
He also commented on the countermeasures to minimize public funds for insolvent banks. “Instead of the government’s injecting taxpayer’s money into insolvent banks, the Basel Committee is devising measures in which their major shareholders will fully be held accountable.”
Aside from the banking sector, insurers and brokerage firms will also face similar supervision as a joint forum among the BCBS, the International Organization of Securities Commissions, and the International Association of Insurance Supervisors is underway, Kim added.
During the interview, Kim clarified the role of Korea in the global stage. “We had proposed that the Basel Committee slash the transition period for implementation of some of new regulation,” he said, adding that the suggestion has been accepted.
“Despite different positions and views, all members could reach an agreement (in the past meetings) because they have consensus that recurrence of global financial crisis should be blocked in any cases,” he said.
Meanwhile, FSS officials forecast that Citibank Korea and SC First Bank could be included in the SIFI list.
By Kim Yon-se (firstname.lastname@example.org)