International Financial Reform Needs To Be Accelerated: Basel Committee

07/06/2011 03:18 pm ET | Updated Sep 05, 2011

Global banking reform isn’t coming fast enough for the Basel Committee on Banking Supervision.

On Wednesday, the Basel Committee, a Swiss-based oversight group that operates as part of the Bank for International Settlements, released a report calling for accelerated reforms of international financial institutions, according to Bloomberg.

In particular, the Committee cited the need for governments to be able to close failing banks more quickly, to draw up contingency plans for worst-case scenarios, and to address discrepancies between nations pursuant to regulatory powers.

The report also noted the “critical” importance of being able to transfer assets, contracts, and liabilities away from a failing bank into a “bridge bank,” in the interest of “financial stability and the protection of depositors."

The Committee based its report on the extent to which its member-nations have managed to implement a series of 10 recommendations the Committee issued in March 2010. At that time, the Committee called for a simplification of corporate group structures, stringer risk mitigation mechanisms, and increased information-sharing amongst nations.

Today, according to the report, the various countries have made some progress executing these reforms, but international cooperation and communication is still lacking, and governments are giving more attention to individual banks and legal entities than to systemic financial networks. In addition, the report says, there isn't enough standardization between nations for how to handle failing financial institutions, and it may be easier or harder to address these problems depending on the country.

The Basel Committee includes members from 27 different nations -- among them India, where U.S. Treasury Secretary Timothy Geithner recently urged leaders to implement banking, insurance and pension reforms; Spain, whose economy the IMF recently pronounced at “considerable” risk despite a raft of fiscal and banking reforms implemented since 2010; and China, whose shadow banking system was recently the subject of a scathing opinion piece in The Wall Street Journal.

Meanwhile, in the United States -- another nation represented on the Basel Committee -- it hasn’t been an auspicious moment for the reform agenda. In late June, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, admitted that he didn’t believe financial reform measures would remain effective in the long term. And shortly before that, Treasury Secretary Geithner expressed his frustration with banks spending “a huge of money to erode, weaken, walk back” the Dodd-Frank financial regulation law.

In late June, the Bank for International Settlements cited “unfinished regulatory reform” as one of the factors that could precipitate another global financial crisis.

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