Banks 'should be subject to greater regulatory scrutiny'

30 March 2011

A number of banks should be subject to increased regulatory scrutiny and higher capital levels, it has been claimed.

HSBC Holdings chairman Douglas Flint stated at least 80 banks need to be deemed systemically important in order to help prevent competitive distortions, Reuters reports.

The industry figure suggested quality of supervision is another area that requires more attention than it does at present.

He also hinted at the possibility of HSBC leaving Britain, should a commission force banks to capitalise their investment operations separately.

To reduce the need for taxpayer bailouts if a bank falls into trouble, regulators are pondering extra safeguards on systemically important financial institutions (SIFIs), the news agency explained.

This could result in top banks holding extra capital of one-to-three percentage points - but Mr Flint claimed there should be at least 80 SIFIs so smaller-scale banks do not gain an advantage, as well as ensuring other consequences for larger institutes are perceived as fair.

He commented: "I suspect the systemically important designated banks, if they are few in number, will see a flow of business to them."

If banks are forced to separately capitalise their retail and investment banking operations, then customers are more likely to remain using universal organisations, Mr Flint explained.

He added: "As soon as that happens, obviously banks impacted will take decisions to protect their economic activity."

The additional cost of having its headquarters in London has resulted in many of HSBC's investors asking about whether staying in Britain is the right place to be, the news outlet noted.

Earlier in the week, the Financial Times reported that Lloyds Banking Group is to receive a £15 billion loan from JP Morgan and Citigroup.

The money is to be used to help the institution sell-off 600 of its branches and to bridge a shortfall between mortgages and customer deposits of between £20 billion and £40 billion.

By Claire Archer

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