Central Bankers to Gather With Private Banks at BIS

By Masahiro Hidaka and Shamim Adam

Jan. 7 (Bloomberg) -- Central bankers plan to hold talks with representatives of financial firms to discuss regulation at a Bank for International Settlements meeting this weekend, according to two Group of Seven central bank officials.

The BIS meetings, held in Basel, Switzerland, occasionally feature sessions with private banks and this month’s gathering will be such an example, the officials said on condition of anonymity because the agenda isn’t public. One of them said chief executive officers usually attend the January gatherings.

The meeting comes as policy makers seek ways to avoid a repeat of the excessive risk-taking that helped spark the recent banking crisis and a month after the BIS urged central banks to take greater account of financial stability. Leaders from the Group of 20 emerging and developed nations pledged in September to develop rules by the end of 2010 to require banks to hold more and better-quality capital and discourage leverage.

“The central bankers are clearly aiming to head off the excesses that will certainly come out of the very easy monetary policy” put in place during the crisis, said Bill Belchere, global chief economist at Mirae Asset Securities in Hong Kong. “They have no choice but to be prudent and vigilant to grapple with the potential problems and stop bubbles before they emerge.”

Central Bank Rates

The Federal Reserve has cut its benchmark rate to almost zero and taken on more than $1 trillion of assets on its balance sheet to combat the credit freeze, while its Japanese counterpart’s benchmark is also near zero. The European Central Bank’s main rate is a record-low 1 percent.

Representatives of banks including BlackRock Inc., Citigroup Inc. and Wells Fargo & Co. will attend the session over the Jan. 9-10 weekend, the Financial Times reported earlier. Wells Fargo CEO John Stumpf isn’t planning to attend, said Janis Smith, a spokeswoman for the San Francisco-based bank. A Citigroup spokesman who declined to be identified said the bank had no comment.

The FT said the BIS invitation cited concerns that financial companies are returning to risk-taking patterns that were in place before the global crisis began in 2007.

“The big issue is disclosure of financial data -- whether banks should have to disclose more information about their risk,” said Fariborz Moshirian, professor of finance at the Australian School of Business at the University of New South Wales. “Multinational banks are finding it very convenient at the moment to increase their activities because there is not any extra supervision.”

International Regulators

Bank of Italy Governor Mario Draghi, who heads the Financial Stability Board of international regulators and central bankers, is scheduled to produce a report on progress toward strengthening regulations before the next G-20 summit. Draghi has warned that banks may seek to block regulatory overhauls as the global economy recovers from the deepest postwar recession.

Banks, buoyed by improving earnings and after repaying state bailouts, have been lobbying against reforms aimed at restricting how much risk they can take. Goldman Sachs Group Inc. and JPMorgan Chase & Co. have seized on record-low interest rates, a stock-market rally and the demise of competitors like Lehman Brothers Holdings Inc. to bolster trading profits.

“As the situation improves, the power of vested interests contrary to any substantive reform get stronger,” Draghi said in a Nov. 12 speech in Rome. A “critical stage” in overhauling regulation and oversight of financial markets is beginning and authorities need “to take bold and radical action to remedy the current deficiencies,” he said.

Leverage Ratio

The Basel Committee on Banking Supervision, for which the BIS provides a secretariat, last month issued a consultation on a series of proposals aimed at making the banking industry more resilient. Among its suggestions was improving the quality of capital that banks hold and introducing a leverage ratio.

The BIS said in a report last month that central bankers should allow financial stability to play a role in monetary policy because low interest rates often spur banks to take on too much risk. It said in the same report that the “current crisis has underlined the importance” of introducing so-called macroprudential supervision, which assesses the risks posed to the whole banking sector rather than individual companies.

U.S. President Barack Obama has also expressed frustration that financial firms that got government bailouts are continuing to take large bonuses and fighting his effort to revamp bank regulations.

“I did not run for office to be helping out a bunch of, you know, fat-cat bankers on Wall Street,” Obama said in an interview with CBS’s “60 Minutes” broadcast on Dec. 13.

Central bankers meet six times a year at the BIS, which calls itself the bank for central banks, holds currency reserves on behalf of its members and produces research.

To contact the reporters on this story: Masahiro Hidaka in Tokyo at mhidaka@bloomberg.net; Shamim Adam in Singapore at sadam2@bloomberg.net