THERE is a danger that the commitment by governments to reform financial systems after the global financial crisis will fade in the euphoria of rising stock markets and asset prices this year.
This was according to CEO Maria Ramos, who spoke at the Wits Graduate School of Public & Development Management Finance on Wednesday night.
She said the seeds of the next financial bubble may arise from the incomplete reform of the crisis, as the “intense pain of the crisis fades”.
The Group of 20 countries had agreed tough new regulations were required for bank capital requirements and ratios, to discourage excessive leverage by banks, and on incentives for bank employees. But they had failed to agree on the capital provisions, although they remained committed to develop these reforms by the end of next year.
As an example, South African banks were leveraged at an average 17%, while in the UK and US banks were leveraged on an average 60%-70%. There was a focus on bonuses and incentive remuneration for bank employees, while the better regulation of over-the-counter markets and derivative products was also being considered globally.
“In the end the best insurance is to make sure institutions are as robust as possible,” Ramos said.
Markets were likely to face tighter regulation, but regulations in developed countries may be more onerous than in SA.
Banks were being challenged by having to foster economic growth through increased lending, while at the same time be responsible lenders by not lending to clients that were too indebted.
On the macroeconomic front, there were challenges in exiting fiscal stimulatory packages the right way and at the right time.
The International Monetary Fund had called for governments to reduce fiscal deficits and the challenge was the risk of cutting the economic recovery by having to reduce government debt.
Ramos said it would not be possible to resolve the problem of financial crises, since “they are as old as financial markets. As long as we have robust institutions, sound macroeconomic policies, economic growth capable of creating jobs, a strong regulatory environment and institutions, these will be the best remedies.”
weste@bdfm.co.za