Banking industry lobby group, the Institute of International Finance, called on international policymakers to recommit to coordinating financial industry regulatory reform, and to resist more intrusive reforms.

The plea comes before finance ministers and central bankers meet in Washington DC next week. “While recent developments have strengthened the near-term economic outlook, there are risks to the durability of the recovery, and these are compounded by signs that the spirit of unity in addressing global challenges may be waning. Accordingly, next week’s meetings pose a test for the G20 of its continued willingness to pursue the high road of global economic and regulatory coordination,” said the IIF’s managing director, Charles Dallara.

Dallara said that it generally supports the G20’s initial plans for higher capital requirements, leverage limits, and better liquidity risk management, “Nevertheless, we are increasingly concerned about the way the G-20 plan is being carried out. Our concerns fall in two broad areas: risks of fragmentation, and the potential impact on credit flows, growth, and employment.”

The IIF worries that proposals such as financial transactions taxes, ring-fencing liquidity, and restrictions on certain lines of business are creeping onto the policy agenda in certain countries. “These proposals introduce further uncertainty about the prospects for regulatory reform and add to the challenges financial institutions face in raising capital,” it says.

The group also called on the Financial Stability Board and the Basel Committee on Banking Supervision to intensify their efforts to ensure that there is a coherent overall framework that ties together the key areas of regulatory reform, which it also warns could be costly.

“Even in a scenario reflecting only the main Basel Committee proposals and no other national initiatives, there would be a significant adverse impact on unemployment and growth in the U.S. extending over several years; a more substantial effect is likely in the Euro-area, reflecting the greater relative importance of banks in the region’s economy; and, there will be material effects on Japan and on emerging markets,” it says.

The IIF also stressed that a new system is needed in which no financial institution should be considered too big to fail, and taxpayers are protected from having to bailout failed financial firms.

On macroeconomic policy, the IIF emphasized the importance of balancing the growth impetus from the public and private sectors. And it pointed out that mature market economies should develop strategies to rein in structural fiscal deficits, while also addressing the near-term challenge of withdrawing emergency fiscal and monetary stimulus.

Global policy coordination could play a role in promoting the reduction of global imbalances while sustaining economic growth, it suggested, and it said the G20 should consider establishing a coordinating body to address the issue.

IE