BIS sounds note of caution on market rebound

The head of the body that oversees global banking regulation has called for caution as the world can ill afford complacency on the assumption that the financial sector had rebounded for good.

General manager of the Bank for International Settlements (BIS) and a former governor of Spain's central bank, James Caruana said that the recent market rebound should not be misinterpreted. The world's leading politicians are to meet at the G20 meeting in Pittsburg, this week to define a general direction for the future control of the sector.

BIS oversees the Basel Committee on Banking Supervision. Caruana, in an interaction with the Financial Times, dismissed critics of the so-called Basel II rules on bank capital who blame the regime's undemanding capital buffers for aggravating the crisis.

Responding to the criticism from politicians about the slow pace of overhaul of the regulatory process in the wake of the financial crisis he said that it was vital not to rush into knee-jerk reforms.

He said it was important to realise that the bank was talking about a higher standard of capital that will happen on a recovery that is strong enough.

He said the BIS was not trying to interfere with the recovery and the transition was important but the bank needed to be careful not to create headwinds for the recovery.

He said that higher capital requirements were the key reform that would feature 'counter-cyclical buffers' designed to ensure banks had enough high-quality capital in good times that they could use in times of trouble.

He added that the Basel Committee was working hard to define the counter-cyclical buffers which would be 'calibrated' early next year with all other capital considerations related to trading activity and additional requirements for systematically important institutions.