A leader at an international financial institutions group says poorly designed efforts to reduce systemic risk could backfire.
M. Fr?d?ric Oud?a, chairman of Soci?t? G?n?rale S.A., Paris, has raised questions about the idea of designating some large, important organizations as "systemically important financial institutions" (SIFIs).
Oud?a, chairman of the regulatory capital steering committee at the Institute of International Finance (IIF), Washington, an international financial institutions trade group, says setting some companies apart by marking them as SIFIS could "create pressures for concentration and hence intensify the problem of 'too big to fail' rather than eliminating it."
Regulators in Europe, the United States and elsewhere have suggested that SIFIs should have extra capital to help them cope with financial stress.
"Imposing simple capital surcharges is not the right way to strengthen systemic stability," Oud?a says in a written statement provided by the IIF.
Overly strict liquidity measures could limit large financial institutions' ability to support commercial paper and credit programs, discourage inter-institution lending, and promote excess concentration in sovereign debt, Oud?a says.
If individual jurisdictions add requirements to the global standards that are eventually adopted, that could cause still more problems, by giving some companies unfair advantages over others and encouraging fragmentation of the financial system, Oud?a says.
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