“Asphyxiating” is a strong word, but that’s the word used at a recent meeting of banking leaders in Spain to describe the effect Basel regulations are having on credit. The meeting, hosted by FICO and the publication Expansion, demonstrated bankers’ frustration and showed that regulators are still searching for the balance between risk avoidance and credit growth. Until this equilibrium is found, banks will struggle to supply credit, and international banks will have to deal with a bewildering variety of demands from different regulatory bodies.
The uncertainty of the situation makes bank agility critical. Unfortunately, agility is not the reality for many of them.
Bank’s regulatory managers and risk managers are now being forced to talk to each other at least to evaluate business impacts over new laws. This momentum is positive, as it will help fashion the new Risk Manager: stronger, better informed and able to cope with regulators while keeping or even increasing profitability. But time is short, bank profitability is low, and banks need to act now to fix their capital problems and their credit supply problems at the same time.