Intesa chief calls for clear rules

By Brooke Masters in London - Published: May 24 2010 03:00 Global banking regulators should act decisively and impose a few clear rules, including limits on total borrowing and tough liquidity standards, to prevent another financial crisis, according to the head of one of Italy's largest banks.

"After two years we have not yet given the market any regulatory certainty," Corrado Passera, chief executive of Intesa Sanpaolo, told the Financial Times. "We badly and urgently need it.

"The risk today is to flood the industry with tons of new rules that might paralyse the economy. Actually we need a few simple rules to reduce the present regulatory uncertainty."

Unlike many of his counterparts, Mr Passera supports proposals by the Basel committee on banking supervision to impose universal limits on leverage - the ratio between a bank's tangible equity and its total assets - and liquidity requirements that would prevent banks using short-term funding to underpin long-term activities. "I expect them to be stricter on the liquidity rules. It's really the area where banks live or die," he said.

Bank analysts say the industry is billions of euros short of meeting the Basel proposal on liquidity.

But Intesa has built up its stock of assets that are easy to sell, such as government bonds, and medium-term funding, and could comply with the rules today. "We believe it is a competitive advantage," Mr Passera said. "We have decided to invest in liquidity and medium-term funding to make sure we can manage through the crisis with our own means."

Mr Passera's regulatory proposals would also include a ban on putting assets offbalance sheet and rules requiring over-the-counter derivatives to be traded on exchanges.

His views, as the head of a large commercial bank, stand in contrast to those of many bankers whose institutions have substantial trading activities and those expressed recently by the Institute of International Finance, the global banking lobby group.

Stephen Green, the HSBC chairman who heads the IIF's capital committee, told the Financial Times last week the Basel committee should not enforce a strict leverage ratio for all banks.

Instead, the IIF wants the ratio to be included in so-called pillar two guidance, which allows local regulators to modify the rule.

Investment banks also warn that forcing OTC trades on to exchanges would make it harder to customise deals and would cut into profits.

Commercial and investment bankers are more united in their opposition to a global banking tax and to the Basel committee's plan to tighten the definition of tier one capital to exclude minority stakes and deferred tax assets.

But Mr Passera again differed from some of his peers by supporting much higher capital requirements for trading books and other risky activities.

"I do hope the regulators will be wise enough to understand there are many different risk profiles and consequently very different capital requirements to be imposed," Mr Passera said.