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Global banks to face tougher regulations

Global banks will face more regulations after US President Barack Obama begins his second term, while central banks in Asia are expected to impose more regulations to protect businesses from the risk of banking collapses, said Soren Nikolajsen, Asia-Pacific chief administrative officer of the Royal Bank of Scotland Group (RBS).

In the Asia-Pacific region, regulators have not yet put in place regulations as comprehensive as those in the United States and Europe, he told The Nation.

Central banks in Asia including the Bank of Thailand have tried to set rules aimed at preventing contagion from local branches of foreign banks when their home bases in the West have faced problems, he said.

One advantage is that Asia has learned lessons from the 1997 financial crisis, making them well prepared for the 2008 global crisis, according to Nikolajsen.

He said global banks would face new rules imposed by the United States, Europe and other places where their branches operate.

He also expects more rules in Asia and the Pacific as regulators try to lessen the impact of future financial crises. It is understandable that local regulators want to protect the interests of local businesses, he said.

Banks will allocate resources where the economic outlook is bright, and the International Monetary Fund has projected that gross domestic product in the Asia-Pacific region will grow 6.7 per cent this year and 7.2 per cent in 2013.

EUROPE, US

Meanwhile in Britain, RBS' home base, GDP will contract by 0.4 per cent this year and grow by only 1.1 per cent next year, while Europe will drop by 0.2 per cent this year and expand only 0.5 per cent in 2013.

The US economy is expected to expand 2.2 per cent this year and 2.1 per cent next year.

US regulators have laid down some rules that limit commercial banks' risky business.

During his re-election campaign, Obama promised to regulate the financial sector further, in contrast to his rival Mitt Romney, who vowed to repeal the Dodd-Frank financial reform initiated by the Obama administration.

Meanwhile, Europe is going to put in place new stringent rules under the so-called Basel III standard.

"The timeline keeps changing," Nikolajsen said. More rules will come while implementation will take a little longer as banks to prepare for the new environment under the accord agreed by the Basel Committee on Banking Supervision, which includes higher capital adequacy levels.

He said RBS was ahead of other banks in Europe that have been hit hard by the global financial crisis. A deleveraging process is nearly complete and the bank is well positioned to take advantage when the global economy recovers.

As part of the restructuring, RBS has sold its non-core businesses, he said.

RBS also relies less on wholesale funding and more on deposits, resulting in lower funding costs and more security.

The British government still owns 82 per cent of the bank. Nobody knows yet when the government will sell its shares, since it is a political decision, he said.


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