Regulators failed to adequately police the world’s biggest banks before the credit crisis because they lacked resources and independence, a group of global financial watchdogs said. The supervision of too-big-to-fail banks must become “more intense, more effective and more reliable,” the Financial Stability Board said in a report on its website yesterday. The group of regulators and central bankers called on national governments to preserve the budgets of financial watchdogs. “Several supervisory agencies have seen their budgets cut sharply as part of broad civil-service cost reduction initiatives,” the FSB said. “These cuts are coming at a time when there are high expectations being placed on these agencies to ensure financial stability in a volatile environment where more skilled resources are required.” Regulators were criticized for their failure to prevent conduct that led to the global financial crisis in 2008. Government support for banks’ lending practices in the years prior to the crisis and the complexity of financial institutions’ activities made it difficult for supervisory authorities to intervene, the FSB said. “Reinforcing the operational independence of supervisory agencies is critical,” the FSB said. Some supervisors have seen their “budgets cut sharply” as part of government austerity plans, the FSB said. It warned that supervisors required “more skilled resources” to ensure financial stability. Spain, Hungary Cuts For example, the Spanish government cut salaries for staff at its central bank by five percent in June. Hungary in September capped central bankers’ pay at 2 million forint ($10,300) a month as part of a wider ceiling for public-sector workers. Andras Simor, the central bank’s governor, previously earned 8.34 million forint a month. It is “preferable” for regulators to rely on fees charged to banks rather that government funding, as this would “guarantee a more stable funding source” and “shield the supervisory agency from being subject to fiscal vacillations,” the FSB said. The Group of 20 countries set up the FSB last year, putting it in charge of coordinating efforts to strengthen global financial regulation in the wake of the crisis. It replaced the Financial Stability Forum, an advisory group with no formal role that was created in 1999 after the Asian financial crisis. Its membership includes G-20 countries, international standard-setters such as the Basel Committee on Banking Supervision, and international organizations such as the World Bank and the International Monetary Fund. The FSB said on Oct. 20 that it will present a report to the G-20 on how to ensure banks don’t become too big to fail. Mario Draghi, the FSB chairman, also said last month that capital and liquidity rules for the largest banks may vary “country to country.” To contact the reporter on this story: Jim Brunsden in Brusselst . To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.

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