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PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHLO #1044/01 1250840
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P 050840Z MAY 09
FM AMEMBASSY LONDON
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INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHBL/AMCONSUL BELFAST 1304
RUEHED/AMCONSUL EDINBURGH 1121

UNCLAS SECTION 01 OF 02 LONDON 001044 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV UK
SUBJECT: UK BANKS CONCERNED EU REGULATIONS RUSHED THROUGH WITHOUT 
GLOBAL COORDINATION 
 
LONDON 00001044  001.2 OF 002 
 
 
¶1. (SBU) Summary:  At a roundtable discussion, representatives from 
seven global banks expressed concern that, while the European 
Commission is pressing forward with financial regulatory reform at 
top speed, many reforms did not appear coordinated with the UK 
government or with other G20 countries.  Bankers were positive about 
the results of the G20 London Summit and the recommendations of the 
de LaRosiere Report of EU Financial Regulation and the UK's Turner 
Review.  Firms, however, hoped for additional practical details and 
greater cooperation between EU, UK and US regulatory authorities to 
harmonize implementation of new regulatory measures.  End Summary. 
 
Need for Cooperation, Concern that the EU Will Go it Alone 
---------------------------- ----------------------------- 
 
¶2. (SBU) On April 24, representatives of JP Morgan, Morgan Stanley, 
Goldman Sachs, Credit Suisse, Bank of America, Citigroup and 
Barclays met with Embassy officers to discuss the outcomes of the 
G20 London Summit and upcoming regulatory reforms in the financial 
sector.  All were encouraged by the G20 Summit Communique, and 
praised the coordinated efforts at the Summit.  In the Summit's 
aftermath, however, firms were concerned collective mechanisms for 
implementing G20 recommendations were unclear or non-existent.  A 
representative from Morgan Stanley said that UK Foreign and 
Commonwealth Office contacts told him there were in fact no formal 
working groups and no pathways and that they did not know when the 
G20 would meet again. 
 
¶3. (SBU) Firms emphasized that UK and European Commission regulatory 
responses to the crisis also lacked coordination.  A representative 
from Credit Suisse stated that there were clearly differing 
initiatives in the UK and in the Commission, and it was unclear how 
the Commission should engage the various member states to iron out 
these differences.  Participants clarified that there was nothing 
wrong with the EU setting up its own system, but that the Commission 
needed to consider how its regulations would mesh with global firms. 
 Since the G20, while the Commission has been moving fast in many 
areas of regulation - including hedge funds, CRAs, consumer 
protection, financial supervision, capital requirements, clearing 
houses, and insurance - bank representatives saw the UK's Financial 
Services Authority moving faster than the Commission on liquidity 
through a program of quantitative easing as well as in the area of 
regulating bank branching.  Morgan Stanley said the UK would attempt 
to temper the pace of the Commission at the upcoming EU Council 
meeting in June. 
 
Banks Support EU Supervision But Not Capital Requirements 
------------------------- ------------------------------- 
 
¶4. (SBU) Commenting on the de LaRosiere Report and the Turner 
Review, bank representatives mostly welcomed report recommendations 
and supported plans for a European Systemic Risk Council but 
highlighted several sticking points.  On the issue of bank 
supervision, firms noted that the UK's Turner Review supports 
EU-wide regulation but believes supervision should remain at the 
national level.  Many firms around the table, however, supported de 
LaRosiere's support for a single EU supervisory body, arguing that 
this would make implementation more pragmatic for global firms and 
be more effective, especially as some EU-member states have weaker 
regulatory bodies than others.  JP Morgan stated that an EU 
supervisor should be based in London and that the FSA should have an 
important role in preparing any EU-wide supervisory structure. 
 
¶5. (SBU) Citibank and Credit Suisse said they found both reports a 
"shopping list" of ideas and proposals from various technical 
committees without a vision of how the market place would function 
in the end and without any cost-benefit analysis.   While there was 
a huge consensus that the list of recommendations in Turner/de 
LaRosiere needed to happen, JP Morgan stated probably less than half 
needed to be implemented now. Further, firms stated that if all 
recommendations were implemented at once, banks would be required to 
hold so much capital and returns on investments would be so limited 
that no investors would have incentive to lend to banks.  Bank 
representatives stated there was a need for an impact assessment 
before implementation of new regulations.  They also criticized de 
LaRosiere and Turner reports for lacking a vision of what type of 
financial systems would ultimately be achieved. 
 
Banks Find UK Government Most Supportive 
---------------------------------------- 
 
¶6. (SBU) Bank representative understood there was justifiably a 
great deal of public distrust in financial markets. However, in the 
current climate, JP Morgan's representative summarized that because 
governments did not feel inclined to speak up for the financial 
sector and the financial sector did not feel in a position to defend 
itself, the focus was too great on punishing banks.  He stated there 
was a need to rethink how to shape the public's understanding of the 
 
LONDON 00001044  002.2 OF 002 
 
 
capital markets to get them functioning properly again.  Citigroup 
stated that an upcoming May 7th Win Bischoff report (Bischoff is 
Citigroup Chair) would clearly outline why financial markets were 
important. 
 
¶7. (SBU) The bankers stated that UK Government officials are 
supportive of international banks - "more so than anywhere else." 
JP Morgan called HM Treasury a reliable and understanding partner, 
which provided consultation and access unparalleled anywhere else in 
Europe.  He emphasized that "we were not here by accident" and said 
UK did not favor its own firms over U.S. banks.  In this crisis, 
Morgan Stanley added that HM Treasury and the EU Commission have 
been interested at every step to see what the market reaction was to 
various proposals.  They felt communications with legislators was 
easier than ever with politicians genuinely interested in their 
views. 
 
¶8. (SBU) Comment:  The bankers seemed eager to work with 
policy-makers to mould a better system of financial regulations but 
were concerned that over-regulation, hasty regulation or 
incompatible regulations would hinder growth and recovery.  As an 
example, firms commented on the new EU regulations on credit ratings 
passed last week, noting that while there was a provision that 
allowed the use of ratings from outside the EU, either via 
equivalence standards or endorsement scheme, in reality, an attempt 
at equivalence could be lengthy.  The ability to use only 
EU-approved credit rating agencies would in turn affect how 
financial institutions determine their reserve requirements. 
 
TOKOLA