BBC News: G20 should agree how to clarify bank losses, says Lighthouse | Continuing uncertainty about assets needs G20 attention

In an interview on BBC1 Breakfast News, James Edsberg discusses the outcome of the G20 Summit in London and the prospect for further regulation of the global banking sector.

“The global banking system got into difficulties because of cumulative deregulation since the 1980s. The debate at today’s G20 meeting is about how much of that regulation should be re-imposed and strengthened”, said James. “For example, will the G20 leaders agree that the ‘firewall’ that used to exist between investment banking division and retail banking operations be re-created? Will the banking sector be broken up once stability has returned in the short term, so that the situation of fewer banks being so interdependent isn’t repeated….”

“…The difference between the US/UK perspective and the Franco-German view is around how stringent that re-regulation should be. One factor driving the European view, might be that imposing European style standards would reduce the competitive advantage and dominance that the US/UK banking sector enjoyed until recently.”

“But the G20 have avoided addressing the continuing uncertainty at the heart of the banking system namely, a lack of agreement about the valuation and common accounting treatment of the losses that banks are likely to incur. This is where the G20 could achieve something truly substantive today. This, added to the fact that the IMF and other international agencies continue to revise upwards their estimate of losses from the derivatives and investment banking operations of the banks, perpetuates the uncertainty.”

“Without this issues being addressed urgently, the recession will bite deeper because liquidity between the banks and borrower will remain weak.”