HONG KONG/BRUSSELS – Asian financial leaders warned Europe on Tuesday to limit any delay in stricter banking rules to months not years amid fears the United States' decision to shelve the controversial new global regime could derail it completely.
Europe is preparing to follow the United States in postponing the introduction of the Basel III reforms, EU sources told Reuters, and the delay could last six months or even longer if diplomats and lawmakers fail to break the deadlock.
"The fact is that the U.S. and euro zone are the most important regions where Basel III should have been implemented," Anand Sinha, deputy governor of the Reserve Bank of India, told a Thomson Reuters Pan-Asian regulatory summit in Hong Kong.
"It would have been very helpful, even if there is a delay, if the U.S. and euro zone could have indicated a definite timeline, that is not there."
The global accord hatched by central bankers and regulators following the financial crisis demands that lenders set aside more capital to cover losses such as unpaid loans. It also lays down higher standards in determining what kind of assets a bank can use to meet these capital levels.
The European Union is struggling to agree on many aspects of the package, including what kinds of assets can be considered liquid, or available at short notice.
Sinha warned that some emerging economies could use the European delay to argue that the new rules, which are meant to safeguard against excessive risk-taking, should not apply to them.
Banks in the Asia Pacific region will now go out on a limb with the new rules, created in the aftermath of the 2008 financial crisis, on January 1.
Switzerland will also comply although its finance ministry said earlier this year that most Swiss lenders already hold enough high-quality capital to comply.
"The fact that other people aren't doing it doesn't meant that we can't," Arthur Yuen, deputy chief executive of the Hong Kong Monetary Authority, told the Thomson Reuters summit.
"In Europe it's a rather complicated process, but I do hope that the deferral of the implementation will only be in terms of months not years"
Speaking in Paris, Michel Barnier, the EU Commissioner who oversees financial regulation, said the bloc was still sticking to a 2013 deadline.
"I am awaiting a reply from the U.S. to a question I asked on the reason behind these few months' delay," Barnier told a news conference. "The bulk of the Basel III architecture will be put in place within the expected time frame."
Brussels is worried that Washington's decision to ignore the deadline will put EU banks at a disadvantage to U.S. rivals.
Barnier wrote to U.S. Federal Reserve Chairman Ben Bernanke asking when Washington will introduce the capital rules and flagging the risks if the United States and Europe take different tacks, people familiar with the matter told Reuters.
"The U.S. is dragging its feet which is not fair," one said.
But privately, many officials in Brussels concede that the same is likely to happen in the 27-member European Union and that the bloc will also be forced to delay implementation, marking a further setback in efforts to reform finance.
On the surface, the postponement would be good news for small banks in particular, because it would give them a chance to adapt to a complex new law still being finalized by EU member countries and the European Parliament.
The secretary general of the Basel Committee which designed the new regime said its launch would go ahead as planned, but conceded that some countries would miss the deadline.
"A large number of jurisdictions have everything in place and are ready to go on January 1, 2013," Wayne Byres told Reuters on the sidelines of a financial sector conference in Abu Dhabi.
"We are persisting with the date, and those not ready on January 1 can be ready thereafter."
By standardizing EU capital rules, the law would make it easier for the European Central Bank to supervise lenders, the first step towards a banking union - a cornerstone of closer fiscal integration in the euro single currency area.
"In practical terms, it seems to be impossible to do something that is implemented by January 1, but officially that hasn't been said," a senior lawmaker in the European Parliament said.
Banks have been pushing for a delay of the new rules until the beginning of 2014, arguing that the U.S. move would put them at a disadvantage.
After months of tortuous, often late-night negotiations between the parliament and EU member states, several issues relating to the new regime remain unresolved and agreement on the broader rules has yet to be reached.
The drawn-out process of signing off a law has frustrated regulators. "This is not a good situation," said one. "They are holding themselves up for ridicule if they don't adapt on time."
(Additional reporting by Stanley Carvalho in Abu Dhabi and Yann Le Guernigou in Paris.; Writing by Carmel Crimmins; Editing by Sophie Walker)