Mar 10 2008 Peter Elstob
The committee set up last October by a group of the world's largest banks to forestall excessive regulatory reaction to the credit market turmoil is making good progress, according to Deutsche Bank head Josef Ackermann. The Institute of International Finance, which includes the world's largest banks among its more than 370 members, will publish an interim report in the next few weeks.
Valor, a Brazilian business newspaper, said on Friday that it had obtained a draft of the 32-page interim report, which voiced banks' concerns that global regulators were contemplating a beefing-up of the Basel II capital adequacy accord. Ackermann, who chairs the IIF, told a press conference following the group's spring meeting in Rio de Janeiro that the IIF's market practices committee was busy developing "actionable recommendations" that would help to restore market confidence.
The committee was established to focus on five areas:
Ackermann said the committee's discussions around risk management were addressing not only technical improvements but also ways to promote best practices that strengthened the interaction of risk management with overall executive management and business strategy. "It is important that risk management be at the core of overall corporate culture to enable firms to better withstand the kinds of market stress that we are currently experiencing," he said.
The committee was working to ensure that conduits and other vehicles would in future be understood by both sponsoring institutions and investing institutions. In relation to valuation, the banks recognised the need to promote the strengthening of internal governance and to ensure a stronger framework around valuation processes that integrated risk, finance and accounting policy inputs. "We are also looking at the possible need for a broad review of accounting standards at the highest levels to ensure that they are consistent with sound finance," Ackermann said.
The IIF was looking at the approaches of rating agencies and at the ways in which their contributions could be enhanced, Ackermann said. It was also addressing the question of global banks' remuneration structures and Ackermann said the IIF was "aware that it is necessary to consider ways in which compensation can be best geared to shareholder interests and long-term performance".
The IIF was in discussions with regulators, although Ackermann said its members recognised that the industry had a primary responsibility to address its own weaknesses and to rebuild confidence in the global financial system.
