Guardian UK: Banks 'have to accept lower profits'

[marmar]

Banks will have to accept lower profits, finance watchdog warns
Larry Elliott and Heather Stewart in Washington
guardian.co.uk, Sunday October 12 2008 16.33 BST


Banks will be forced to accept lower levels of profit as controls on their debt-fuelled expansion are tightened up to prevent a re-run of the current crisis, the international body responsible for global financial stability has warned.

Mario Draghi, the chairman of the Financial Stability Forum (FSF), said that in the new post-credit crunch world, banks would have to carry less debt and have higher capital reserves in order to prevent the "perverse incentives" that were at the root of the bank collapses across the globe.

"It's what everybody now understands," Draghi said in Washington. "It seems easy, it seems simple, but somehow it's a very difficult concept to put in people's heads, for one reason: profits are going to be lower in the financial services industry in the future."

The FSF, which includes central bankers and financial regulators, said that since the fire sale of Bear Stearns in March, "strains in the financial system have deepened to unprecedented levels, necessitating extraordinary emergency measures".

In a report presented to G7 finance ministers at the International Monetary Fund in Washington this weekend, the FSF said work was already underway on a comprehensive reform package designed to tighten accounting standards; force banks to reveal their exposure to complex derivatives trades; and prevent excessive lending in boom times. .......(more)

The complete piece is at: http://www.guardian.co.uk/business/2008/oct/12/banking-globaleconomy