Insurers, asset managers need tighter control – BIS

Zurich (Reuters): Insurance companies, asset managers and providers of financial market infrastructure need tighter supervision so that owners and managers are forced to bear the cost of the big risks they take, said an economic advisor to the Bank for International Settlements.

In a speech comparing a bank failure with a car wreck on the motorway, Economic Adviser Stephen Cecchetti said that while the chief focus has been banks, regulators must not cast their net too narrowly.

“The principle is the same as for banks: the owners and managers must be forced to face the costs of the systemic risks that they create,” he said in the text of a speech entitled ‘The Rules of the Road’ and written for an event in Paris.

Much work has been done to draft better capital and solvency buffers, resulting in the new Basel III global rules, which come into force from 2013.

Yet there are still further measures global regulators could take to prevent any future failure of a major financial player destabilising the whole system.

Efforts have chiefly focussed on banks, and critics have said insurers, hedge funds and other players may need stricter rules.

“A combination of higher loss absorbency, streamlined resolution and more intense supervision must reduce both the likelihood and impact of failure for both bank and non-bank financial institutions,” he said.

Banks are pushing to scale back or postpone Basel III, saying profits will shrink and borrowing costs will rise.

But they are getting little sympathy from policy makers.

“I am convinced that the benefits of the new capital and liquidity standards far outweigh the costs both during the transition and in the long run,” said Cecchetti.