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 PricewaterhouseCoopers has responded to the Basel Committee on Banking Supervision's (BCBS) consultative proposals to strengthen the resilience of the banking sector, which closed recently.
Jeremy Scott, global financial services leader, PricewaterhouseCoopers LLP, said: “The proposals issued by the BCBS set the right tone and are heading in the right direction to strengthen the stability of the financial system. We welcome the aims of the BCBS proposals which build on the extensive steps that the banking sector has already taken to strengthen capital ratios, to lower leverage and to reduce liquidity risk.
“However, the wider effects on the economy need to be assessed. Without this, the proposals could constrain lending to real businesses and act as a significant risk to future economic growth".
Richard Barfield, director, PricewaterhouseCoopers LLP, commented: "A more balanced set of regulatory tools is needed. The combined effects of the proposed higher requirements and the creation of buffers are overly conservative and lack transparency. The focus is heavily placed on capital and liquidity buffers with little attention paid to other mechanisms that could strengthen the banking industry. This approach will lead to the provision of unnecessarily high buffers.
"Ultimately, capital is expensive and needs to be adequately compensated for investors to invest to support regulatory objectives. The Basel Committee needs to consider how attractive these proposals will be to investors, otherwise they run the risk of banks being unable to maintain the levels of capital that will be required."
"The fundamental questions of what are the right levels of capital and liquidity for the banking industry need to be addressed".
Pat Newberry, chairman of the UK financial services regulatory practice, PricewaterhouseCoopers LLP, added: "We would also encourage Basel to carefully evaluate the timescales envisaged for transition. This is the most significant piece of regulation to hit the banking industry in the last ten years and in order for it to be effective, it should not be rushed through.
"There is a real need to assess the combined effects of potential changes in accounting standards with the proposed raft of regulatory changes to ensure that unintended consequences are avoided."
•Date: 23rd April 2010 • Region: World •Type: Article •Topic: Operational risk
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