* Designating SIFIs might encourage banks to bulk up -IIF
* Capital surcharges not the answer -SocGen CEO
* Praet says too-big-to-fail deal in 2011 is ambitious
* FSA's Huertas: no deal means focus on structural remedies
(Adds Praet, Huertas, comment)
By Lionel Laurent and Huw Jones
PARIS/LONDON, Jan 24 (Reuters) - Plans to saddle large banks with extra safeguards would make the financial system more unstable and could increase the number of "too big to fail" institutions, a leading bank lobby group warned on Monday.
"Imposing simple capital surcharges is not the right way to
strengthen systemic stability," said Frederic Oudea, chief
executive of France's Societe Generale Speaking after a meeting of the IIF's committee on
regulatory capital, which Oudea chairs, he warned that singling
out some banks as systemically important would create a two-tier
market and not solve the issue of "too big to fail" lenders. Global supervisors are hammering out a package of measures
designed to make big, complex banks -- or systemically important
financial institutions (SIFIs) -- safer and less of a burden to
the taxpayer in case of future crises. It could force them to hold an extra capital cushion,
possibly of 2 percentage points. "There is a risk that this will create pressures for
concentration and hence intensify the problem of 'too big to
fail' rather than eliminating it," said Oudea in a statement
after the IIF meeting. "We need to look at ways to increase the resilience and
resolvability of these firms," he added. The IIF represents more than 430 financial institutions
including Deutsche Bank, HSBC, Citigroup, JPMorgan and UBS. Separately, two top regulators said on Monday that a global
deal this year on "too big to fail" banks was a tall order and
failure might make more radical remedies more likely. The timetable for measures such as capital surcharges and
resolution mechanisms has slipped a year to the end of 2011. Further delays may be inevitable as countries haggle over
the finer detail of which big lenders should be affected. "This is extremely ambitious to do this year," Peter Praet,
executive director of the Belgian National Bank, told a London
School of Economics seminar. ENDGAME NEEDED Oudea called for a task force under the Group of Twenty
(G20) countries' umbrella -- this year led by France -- to forge
agreements on how to unwind failing banks with cross-border
operations, or cross-border resolutions. "It should be possible to make progress if the political
will exists," Oudea said. But Praet, also member of the European Central Bank's
banking supervision committee and of the global Basel Committee
of bank supervisors, said resolution would be hard to achieve
quickly which was why a multiple approach that included
surcharges was needed. "The general mood is that proper crisis resolution for cross
border institutions is impossible, it will take many many years,
unfortunately," Praet said. Thomas Huertas, who heads the UK Financial Services
Authority's banking unit, said there was still no "endgame" for
very large systemically important financial institutions,
meaning they cannot be wound up easily without disrupting
markets or requiring taxpayer help. "If 'too big to fail' cannot be resolved, then things will
swing to a discussion on structure," Huertas told the LSE. "I hope we can avoid that. I hope we could have a sensible
discussion. The easy identification of so-called casino banking
with investment banking may not hold up," Huertas said. Regulators have said such structural remedies could range
from splitting up banks to ring fencing deposits or riskier
operations Huertas said bail-ins or use of hybrid debt that can convert
into capital-boosting equity in times of trouble, had a great
deal of promise and might help avoid structural remedies. "If I were a banker, I would work rather intensively on
whether bails-ins can work," Huertas said. A group of European academics said in a report on Monday
that regulators had lost momentum over tackling too big to fail
banks after backtracking from requiring all systemically
important lenders to hold extra capital. Focusing on the biggest banks first opens the door to more
intense campaigning by banks, the group said. "The process is fading away. If you are labelled a global
SIFI by a regulator and a close competitor in the domestic
market is not, you will start lobbying your regulator," the
group's chairman, Harald Benink said.
(Editing by David Holmes and Jane Merriman)