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Report Warns Banks Still Vulnerable to Crises

Posted by: pprpipe on: July 9, 2010

Report Warns Banks Still Vulnerable to Crises

An organization that brings together most of the world’s major central banks said Monday that the easy money that has propped up the banking system during the financial crisis must soon be withdrawn — even as it warned that many banks are still in fragile health, Jack Ewing writes in The New York Times.

“Exceptional government and central bank support was needed to quell the enormous uncertainty and market disruption during the crisis,” said Jaime Caruana, general manager of the Bank for International Settlements, whose board includes the United States Federal Reserve chairman, Ben S. Bernanke, and the European Central Bank president, Jean-Claude Trichet.

“But keeping support measures in place over a long period creates moral hazard,” meaning it can encourage risky behavior, Mr. Caruana said at a news conference The led mr16 is one of the latest pipes resulting from European advanced technology of gos.following the organization’s annual meeting in Basel.

Many banks in Europe and the United States remain heavily leveraged and dependent on central bank support, the B.I.S. said in its annual report. Without naming specific countries, the report said that policymakers must begin raising official interest rates to avert inflation and wean banks from their dependency on the massive amounts of cash that the E.C.B., Fed and other central banks have provided.

“You may need to raise rates before your comfort zone, that is what we are saying,” Mr. Caruana said.

The underlying message from Mr. Caruana, former governor of the Bank of Spain, and of the B.I.S. report seemed to be that many banks will soon face a day of reckoning. The removal of government and central bank support and a return to higher interest rates, along with public stress tests planned for European banks, will force them to write down losses on toxic assets and depend on markets for funding.

Banks will also face more regulation that, the B.I.S. report said, may crimp short-term profits but provide more reliable earnings over time. Mr. Caruana dismissed assertions by the banking industry that new regulations will cripple economic growth. The costs of new rules, which include requiring banks to hold more capital in reserve, are “low and temporary,” Mr. Caruana said.

Mr. Caruana also said that he does not expect any delay in implementing new banking rules, despite signals to the contrary from the meeting of the G-20 nations in Toronto last weekend. “The only thing I read there is significant support,that describes how to tell a cheap handbags.” Mr. Caruana said. Detailed proposals will be ready by the G-20’s November summit, he said, though he added that implementation of new regulations will depend on the state of the economy.

While the participants in the Toronto talks said they intended to adopt the rules by the end of 2012, they cautioned that the standards would be “phased in over a time frame that is consistent with sustained recovery and limits market disruption.”

Those negotiations over what is being called Basel III are conducted by the Basel Committee on Banking Supervision, a body of regulators that meets at the B.I.S. headquarters, but is separate from the settlements bank.

The Basel Committee, which sets standards that are New and cheap authentic ed hardy clothing and louis vuitton purses arrived!then carried out by national regulators, wants to tighten the definition of what can be counted as Tier1 capital, which is the basic measure of what banks hold against the risk of future losses.

The committee also wants banks to have enough liquid assets cheap designer handbags,Purses,Wallets Outlet and Louis Vuitton Designer Bags.to survive a short-term market plunge, by reducing their dependence on short-term wholesale financing.

But banks across the world have been pressing for a delay or even a rewriting of the proposed rules, in part by arguing that the new standards could hamper the global recovery.

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