The British Bankers' Association (BBA) has published a letter from its chairman, Stephen Green, to Prime Minister Gordon Brown ahead of the G20 summit in Pittsburgh.
While the BBA broadly supports the process put in place by the G20 to reform international financial regulation, it believes that there is a need to plan exit strategies from the emergency measures that were introduced at the depth of the financial crisis. It also has concerns over the potential unwanted synergies of reform measures acting in concert, which, taken individually, may have individual merit, and suggests that the Financial Stability Board addresses this issue.
Further, the BBA points out that there is an inherent contradiction in expecting financial organisations to both increase their retained capital and at the same time lend it to businesses and consumers.
The BBA is also concerned about the danger of protectionist measures starting to appear at the national level and believes that the way to counter this is by ensuring strong agreement at the international level.
The primary area for action should be the development of the right prudential and supervisory frameworks and the BBA wants reforms to be agreed by the Basel Committee in a timely manner and consistently committed to by the G20 nations. There should be consistent definitions of capital, agreement of appropriate capital levels, development of counter-cyclical measures and the fundamentals of a non-risk based leverage ratio to act as a genuine regulatory back stop.
The BBA also wants to see, and supports, steps taken as a matter of priority on the interrelation between accounting standards and capital requirements - this with a view to developing a harmonised set of accounting standards.
The BBA also favours the continued development of colleges of supervisors and welcomes the work done so far by the Financial Stability Board in elucidating principles for their operation. The manner of dealing with crises arising in cross-border banks also needs to be evolved, and the BBA sees stress tests conducted at the appropriate level within a group and taken forward through the college of supervisors as a way of achieving this.
The letter also touches on remuneration and bonuses and suggests that the new UK regulatory approach needs a true alignment of remuneration and long-term performance, as part of a regime which has enforcement and penalty powers, but is also shaped so as to be usable in other jurisdictions.
Finally, there is a mention of the need for principles of good regulation to be followed, and these include good due process and continuing consultation with the industry.