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Biggest Banks Given Extra Time on Reform

Brooke Masters in London
Monday, 5 Nov 2012 | 10:40 PM ET

Global financial reform efforts are falling behind schedule, regulators have conceded. They are giving the biggest banks extra time to write so-called "living wills" and acknowledge that fewer than one-third of the big financial centers will have Basel III rules in place on time.

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The Financial Stability Board, made up of central bankers and regulators, announced on Monday that "uneven headway" had been made on solving the problem of banks that were seen as "too big to fail".

Although 28 banks have been assigned higher capital surcharges, many will not meet the end of 2012 deadline for writing living wills – the blueprints for stabilizing or shutting them down in a crisis.

The "global systemically important financial institutions" (GSifis) will be given an additional six months to finish their wills, also known as recovery and resolution plans, and peer reviews will take until the end of 2013.

(Read More: No Relaxation of Bank Capital Targets: EU Watchdog)

At the same time, the FSB said, only eight of the 27 members of the Basel Committee on Banking Supervision, which writes global bank capital rules, are on track to enshrine the "Basel III" reforms in national law by January even though the rules were supposed to be phased in from then.

"The tasks ahead remain considerable . . . It is crucial that all jurisdictions redouble their efforts to pass legislation that is consistent with the Basel III framework," Mark Carney, the Canadian central banker who chairs the FSB, wrote to the leaders of the Group of 20 leading economies.

The FSB letter to the G20 also contained updates on some of the other financial reform efforts that were launched in a bid to prevent a repeat of the 2008 global financial crisis, including drives to reduce risk from over-the-counter derivatives and so-called "shadow banks" – financial institutions that extend credit but do not take deposits.

G20 members pledged in 2009 that they would seek to force standardized derivatives into central clearing to make it easier to measure and compensate for the risks of the transactions. The FSB reported that eight of the 25 member countries planned to use incentives – rather than rules – to convince banks and brokers to put their OTC derivatives through clearing. A total of 16 countries already mandate clearing or plan to impose mandates if the incentives fail.

The FSB is expected to announce plans to cut the risks of shadow banks, including proposals affecting money market funds, securities lending and securitisation, later this month.