Heads of big banks push back against stricter banking rules

Hong Kong — Top global banking chiefs said on Tuesday that they were concerned the financial sector’s next crisis may come from rising geopolitical uncertainty, which could test financial market resiliency, while the industry remains vulnerable to regulatory tightening.

The trigger for the next global financial crisis is likely to come from the geopolitical or political space, said Morgan Stanley chair and CEO James Gorman.

Gorman was among more than a dozen top executives of international firms speaking at the Global Financial Leaders Investment Summit hosted by the Hong Kong Monetary Authority.

“The challenges to democracy in some countries around the world are pretty evident,” Gorman said without elaborating.

The comments come as an unfolding Israel-Gaza conflict adds uncertainty to the global economic outlook, while the Russia-Ukraine war drags on and Sino-US tension continues to rise despite efforts to bring leaders of the two super powers closer.

Deutsche Bank CEO Christian Sewing said markets had largely been resilient in the face of global events but any calm was vulnerable to the risk of new events.

“My biggest fear is that one more geopolitical escalation — and that can happen pretty quickly — and the markets at some point in time actually give up the calmness and then you have a market event,” Sewing said.

Regulation ‘way too far’

The global banking bosses also took the stage of the Asia summit to voice their concerns in an unusually aggressive joint effort to push back on a set of stricter banking rules.

Widely referred to as the “Basel Endgame”, a sweeping overhaul that would direct banks to set aside billions more in capital to guard against risk was brought forward in July.

“While we want the system to be safe and sound, when I looked at these rules I think they go way too far,” Goldman Sachs CEO David Solomon said in a separate panel, referring to the banking regulatory tightening.

“If implemented, the way [the rules] are outlined, it is a significant additional economic tightening on the system at the time when I don’t think that’s in the best interest of economic activities and growth,” Solomon added.

In the US, the banking regulator has announced sweeping proposals to impose stricter capital rules for big lenders following runs on smaller banks earlier in 2023, whereas the industry has argued there is no justification for significant capital increases.

“Certainly I think movements from certain regulators at the moment to try to talk about capital are misguided. They should be focusing on other issues,” said UBS chair Colm Kelleher, without specifying regulators.

“The policy objective is to limit the size of large banks,” said Morgan Stanley’s Gorman.

But “when you put pressure on the system the least competitive players fall back,” he said, adding it’s challenging to predict next crisis until the policy conundrum is solved. 

Reuters