Big global banks upbeat about financial stability

ST ANDREWS: The world���s biggest banks are still too optimistic about the state of their own finances and authorities should be wary of allowing some to exit government support, the Financial Stability Board said. The FSB, a group of regulators charged by global leaders to rewrite global financial rules, said its findings were borne out by the self assessments of 20 global banks given to regulators. The FSB, which drew up a report for Group of 20 finance ministers, didn���t name the banks.

���Some banks became dependent on this assistance and don���t seem to be able to detach themselves from the public support,��� FSB chairman Mario Draghi told reporters on Sunday after a G-20 meeting in St Andrews, Scotland. ���Some jurisdictions may continue to support unsustainable business models.���

Governments spent more than $500 billion in the past year bailing out banks to shore up the financial system amid the worst crisis since the Great Depression. Banks that have received government support during the crisis should only be allowed to exit such programmes when their finances are healthy enough to survive another downturn, the FSB said.

���While firms indicated that they had either fully or partially compiled with the most recommendations, the Senior Supervisors Group members found that these assessments were, in the aggregate, too positive,��� said FSB. ���Much stronger ongoing management commitment to risk control��� will be required to close the gap.������

With market conditions improving, banks ranging from Goldman Sachs to BNP Paribas, have left state support programmes, in part to avoid stricter pay and lending demands imposed by the governments who were propping them up. Finance ministries should be wary of institutions wanting to exit the programmes too quickly, FSB said.

���Authorities may want to delay exit in order to preserve their freedom of action in case conditions again worsen,��� the report said. ���A terminated programme that subsequently needs to be reinstated could undermine the broader credibility of the official sectors��� policy response.���

The FSB also published a paper setting out the ways that policy makers can assess which banks and market instruments have ���systemic importance��� that make them too big to fail. The paper, drawn up with the International Monetary Fund and the Bank for International Settlements, said the size of an institution, its links with other parts of the financial system and the capability of other organisations to pick up its work in a crisis all matter in identifying the most important banks.