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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 theeconomy. 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. "Iexpect 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 governmentbonds, 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 off-

balance sheet and rules requiring over-the-counter derivatives to be traded onexchanges.

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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 theFinancial 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.