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1

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H.E. Mr Lee Myung-Bak

President of The Republic of Korea

1 Cheongwadae-ro

Jongno-gu

Seoul

The Republic of Korea

5 November 2010

Dear Mr President,

We write to you ahead of the meeting of the G20 Summit on 11 and 12 November 2010 to communicate the views of the International Banking Federation’s (‘IBFed’) member associations and the firms they represent.

The IBFed is the representative body for national and international banking associations from leading financial nations around the world. Its membership includes the American Bankers’ Association, the Australian Bankers’ Association, the Canadian Bankers Association, the China Banking Association, the European Banking Federation, the Indian Banks’ Association, the Japanese Bankers’ Association, the Korea Federation of Banks, the Association of Russian Banks and the BankingAssociation South Africa. This worldwide reach enables the Federation to function as the key international association for addressing legislative, regulatory and other issues of interest to the global banking industry.

We share the view expressed in the Gyeongju Communiqué that significant strides have been made by the G20, Financial Stability Board and international standard setters since the adoption of the Action Plan to Implement Principles for Reform in November 2008. We commend the commitment made by the G20 leaders to agree enhancementsto regulatory standards and to implement the new standards in a way that ensures a level playing field and avoids fragmentation, protectionism and regulatory arbitrage. We concur with the assessment made by the G20 Finance Ministers last month that the priority issues for the Summit to consider are Basel III, measures to enhance crisis management frameworks and the quality of supervision. We provide our perspective on each of these below.

We note the progress made by the Basel Committee towards the development of new regimes for capital and liquidity and the recognition that the transition to the new standards will be challenging. Although we hold reservations over the potential impact the new standards may have on the supply and availability of credit, we welcome the extended timetable over which transition to the new requirements will be made. Nevertheless the transition will be challenging and this underlines the importance of not imposing additional burdens – such as further taxes or levies – which have a minimal contribution to make towards enhancing financial stability but do reduce banks’ resources and therefore hinder their ability to lend into the economy and build their capital reserves.

We note that the development of a framework to address the risks posed by systemically important financial institutions will be an important area of discussion at the Summit. We look forward to the publication of the Financial Stability Board’s recommendations for a policy framework for reducing the moral hazard risks posed by regulatory recognition of a class of ‘significant institutions’ but would urge that this issue be considered in a broad context. We would not support a blanket increase in capital requirements for institutions identified as systemically important. Systemic risks can be and must be countered first and foremost by better supervision under Pillar 2. Macro-prudential supervision will also have an important role to play. It is not only institutions which can be systemic but infrastructure, markets and participants. It should also be recalled that circumstances and market innovations will alter what can be considered systemic overtime. Therefore, an exhaustive list of global SIFIs is not a useful approach.

In terms of identifying measures to address the risks in this area, our view would be that at least part of the solution can be found in ensuring that there are procedures in place to ensure that any institution no matter its size or interconnection can be subject to a resolution process. Crisis management groups allied to colleges of supervisors also have a role to play in planning for and then coordinating measures to stabilize and if necessary resolve a cross-border group.

As related in our letter to the G20 Finance Ministers last month, it is important to recall that no matter how well framed regulatory requirements are the effectiveness of supervision makes the greatest contribution to ensuring the safety and soundness of financial institutions. To us effective supervision means that supervisors need to challenge management, to understand the business model and activities of the group and, in the case of cross-border groups, to work through colleges of supervisors.

The issues set out above are the most pressing but making progress in these areas should not detract from the development and implementation of the full G20 Action Plan. To preserve the stability of markets, it is important for there to be transparency around the way in which G20 countries have implemented the agreements flowing from the Action Plan. The Financial Stability Board has an important role to play in this regard and we continue to welcome its peer and thematic reviews and would encourage a deepening and widening of this programme.

In summary, we would like to underline our support for the G20 process and stand ready to provide the Financial Stability Board and individual standard setters with advice and opinions as their work progresses.

Yours sincerely

Mrs Sally J Scutt

Managing Director

cc Svein Andresen

Standing Commissioner Dr Jong-Goo Yi

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