New international guidelines on derivatives disclosure have come under fire from bankers as needlessly burdensome.
Issued on Tuesday, a joint report of the Basel Committee on Banking Supervision and the Technical Committee of the International Organisation of Securities Commissions was sent to supervisors of banks and securities firms of G-10 member nations. Its purpose is to improve supervisory access and reporting of over-the-counter and exchange-traded derivatives.
Bankers said gathering the information could prove costly, and complained that derivatives were being unfairly singled out as a source of risk. Some suggested the regulators are overreacting after a year of derivatives-related disasters ranging from the Orange County bankruptcy to the collapse of Barings PLC, a British investment house.
The International Swaps and Derivatives Association "has deep reservations about an approach that singles out derivatives," said chairman Gay Evans, who is also managing director of Bankers Trust International.
Derivatives are financial instruments whose value is linked to changes in benchmarks such as interest rates and stock indexes. Ms. Evans praised global regulatory cooperation, but said that regulators may be forcing bankers into a meaningless exercise in information gathering if they isolate derivatives from other types of instruments.
"The risks from derivatives are the same as those from any traditional financial transaction, like lending or cash securities," she said. "In that light, we're a little taken aback" by the requirements.
Bankers also suggested that the Basel committee's methods for assessing risk may be flawed.
The new framework defines credit risk without including a consideration of mark-to-market or collateral provisions that reduce exposure.
Observers said that in requiring additional derivatives disclosure, regulators are closing the barn door after the horses are out.
"Many of these institutions want to disclose that they don't have a problem," said Heinz Binggeli, managing director at Emcor, a consulting firm in Irvington, N.Y. Financial institutions want to show that they have nothing to hide, so they disclose their holdings, he said.
Bankers said that the additional burden of providing information might give unregulated institutions a competitive advantage.
"A company that doesn't need to disclose as much on their trading inventory is clearly at a competitive advantage," said Robert Swanton, a director at Standard & Poor's Ratings Group.
To be sure, some observers didn't see much to worry about in the guidelines. "There is a definite benefit to having a system that assesses risks and losses," said John Chambers, a director at S&P. "It's not like you're providing the government with numbers without a purpose."
But others said the cost of providing specific information to regulators might be problematic, especially for some of the smaller derivatives players. "New regulations raise the level of volumes that are required to break even and make a profitable business," said Mr. Swanton.