FSB's Carney says calls for slower bank reforms are 'fanciful'

OTTAWA, Oct 11 (Reuters) - The idea that global bankingreforms should be watered down or delayed to protect a weakglobal economy is "fanciful," Mark Carney, head of the G20'sfinancial regulatory task force, said in an interview publishedon Thursday in Euromoney Magazine.

"The major emerging market economies, having beenside-swiped by the last crisis, have a concern about the healthat the core of the global financial system, so the idea that wecan somehow slow down the reform process and release capitalrather than build it, and somehow that will help reinforce anopen global economy, is fanciful," Carney was quoted as sayingin the article.

He was responding to arguments by bankers that new rulesrequiring them to hold more capital would push up bank lendingrates, resulting in lost jobs and lower economic output.

Carney, governor of the Bank of Canada, is also chair of theFinancial Stability Board (FSB), in charge of implementing theregulatory reform agenda endorsed by leaders of the Group of 20emerging and advanced economies.

The new banking rules, known as Basel III, are designed toensure that taxpayers do not have to bail out undercapitalizedlenders as they did during the global financial crisis.

Carney is fighting to keep momentum going as it becomesclear many countries will not be ready to enforce the rules byJanuary as planned and a senior Bank of England official spokeout against them. The FSB met in Tokyo on Thursday.

For large U.S. banks, the cost of meeting the Basel IIIrequirements and a capital surcharge in some cases would be theequivalent of about 1.5 times last year's after-tax profits,Carney said.

"And they have six years to do it, and we are going to sithere and say Basel III is causing the shortfall? No, there aremany more fundamental reasons for this," he said.

"In many cases, the problem is the absence of credit demand,not supply, and we are in a global economy where there is a needto delever to repay credit so there will be this weakness, andthat's not a reform question."

Carney's predecessor as Canadian central bank chief, DavidDodge, has also spoken out against some aspects of the newregulations.

"Basel III is getting watered down right away, and I thinkthat makes some very real sense," Dodge told reporters in Ottawalate Wednesday.

Dodge now sits on the board of directors of the Bank of NovaScotia and chairs the global market monitoring committee of theInstitute of International Finance, a global banking lobby.

He said he had raised his concerns with Carney and withCanada's banking regulator Julie Dickson.

"We're doing things in a way that is more expensive thanthey need to be and that worries me. We divert so much usefultalent into dealing with all this nonsense," he said.

(Reporting by Louise Egan)

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Keywords: G20 FSB/CARNEY