Wednesday, March 23, 2011

G20 Next To Target Large National Banks: National, But Still Too Big To Fail

Large national banks will be the target the G-20 on the second half of 2011, and risk of having to ensure capitalization levels higher than other banks in the world and ensure system stability. The matter is being reported by Brazilian press today as it will affect major Brazilian banks Bradesco and Itau among others.

The President of the Swiss National Bank, Philipp Hildebrand, confirmed yesterday that the group will begin discussing a new regulation for the operation of large national banks that may pose risks to global economy.

Sources in the Brazilian government promised an "intense negotiations" on the possible limits imposed on national banks.

In late 2010 the G-20 discussed the situation of banks and financial institutions decided that banks with global profiles, such as Citibank, UBS, Credit Suisse and another dozen banks would have to follow more stringent regulations to operate.
At the height of the crisis, global central banks said lthat arge banks and their threats to go bust were the main culprits in the 2008 crisis. At the end of last year, the G-20 accepted the plan to reestablish a new regulation for banks considered "too big to fail". The first list included only major world financial institutions that could cause "systemic impact". "I think it was the right decision to start with this group of banks," said Hildebrand.

These banks have to maintain cash liquidity volume superior to all others. Moreover, the degree of leverage will be lower than the rest of the banks. The limits and amount of money still to be defined during the year.
Asked whether the national banks will have to follow the new requirements, Mr. Hildebrand did not rule out the possibility. "That's what we'll start discussing,".

The Brazilian Federation of Banks (Febraban) cautions, however, that levels of capitalization of Brazilian banks are superior to the rest of the world. The index set by the Basel BC in Brazil is 11%, while the Basel Committee provides 8%. However, on average, Brazilian banks practice a capitalization ratio of 17%, says Febraban.

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