Switzerland-A spate of banking crises around the globe is of more than just passing interest to big U.S. banks.
Many U.S. banking companies, for example, are actively stepping up underwriting bonds and lending to banks and corporations in emerging markets. They assume that risks in these markets are decreasing. But with banking crises on the increase worldwide, a growing number of U.S. bankers and analysts question whether pricing on the loans they make and bonds they underwrite adequately reflects the risks being taking on.
"Banking systems in many of these countries are weak," observed Shahzad Shabaz, a BankAmerica Corp. senior vice president and regional manager in London for Central and Eastern Europe. He spoke during the recent International Monetary Conference here.
BankAmerica, for example, is hedging its bets by dealing only with "the top banks and largest players, who are either strong enough to stand alone or, if something happens, can count on government support," said Mr. Shabaz.
Observed Tony Best, a managing director at J.P. Morgan Securities Ltd. in London, "Competition is fierce, and it's easy to borrow money. Banks should be taking much tougher choices."
The bankers' remarks came amid a widening global debate over what to do about the rapidly increasing number of banking crises, as well as the difficulty of regulating financial institutions operating in several time zones.
In the last two years, banks in Mexico, Argentina, South Korea, Bulgaria, and Thailand have faced severe financial disorder. In many other countries, such as Poland, Hungary, Brazil, Japan, and the Czech Republic, large banks have failed and been taken over by the government, while banks in Japan, France, and England have all suffered massive losses as a result of fraud and bad management.
In April, the Basel Committee on Banking Supervision, comprising banking regulators from the G-10 countries, recommended adopting tighter worldwide guidelines for banking supervision. The guidelines are now being reviewed for comment and are expected to be completed by September.
By and large, bankers delivered a resounding "no" to the prospect of increased international banking regulation.
Even the Bank for International Settlements and "rules enforced by central banks to ensure the quality of bank operations may not be enough to prevent mishaps in the financial sector," said Chatri Sophonpanich, president of Bangkok Bank. "In that case, self-discipline is the only means that banks have to resort to."
Ulrich Cartellieri, a member of the board at Deutsche Bank, said increased regulation brings "more illusions about the safety of the industry and the marketplace and, of course, more costly accidents."
He also noted that "sophisticated regulations in sophisticated countries" were unable to prevent massive losses at London-based Barings Bank PLC, France's Credit Lyonnais, and London-based Deutsche Morgan Grenfell.
Regulators themselves acknowledged there are limits to the role they can play ensuring the safety and soundness of banking systems.
"No amount of external regulation can prevent losses at institutions from fraud and mismanagement," remarked Lee Ek Tieng, managing director of the Singapore Monetary Authority. "Banks which have a reputation to maintain would have a deep vested interest to exercise effective self- discipline."