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

OTTAWA, Oct 11 (Reuters) - The idea that global banking reforms should be watered down or delayed to protect a weak global economy is "fanciful," Mark Carney, head of the G20's financial regulatory task force, said in an interview published on Thursday in Euromoney Magazine.

"The major emerging market economies, having been side-swiped by the last crisis, have a concern about the health at the core of the global financial system, so the idea that we can somehow slow down the reform process and release capital rather than build it, and somehow that will help reinforce an open global economy, is fanciful," Carney was quoted as saying in the article.

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

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

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

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

For large U.S. banks, the cost of meeting the Basel III requirements and a capital surcharge in some cases would be the equivalent 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 sit here and say Basel III is causing the shortfall? No, there are many 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 need to delever to repay credit so there will be this weakness, and that's not a reform question."

Carney's predecessor as Canadian central bank chief, David Dodge, has also spoken out against some aspects of the new regulations.

"Basel III is getting watered down right away, and I think that makes some very real sense," Dodge told reporters in Ottawa late Wednesday.

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

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

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

(Reporting by Louise Egan)

((louise.egan@thomsonreuters.com)(+1 - 613 - 235 - 6745)(Reuters Messaging: louise.egan.reuters.net@reuters.com))

Keywords: G20 FSB/CARNEY