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The Basel III bank reforms currently in development probably won't prevent banks taking on excessive risk because they are too soft at influencing behavior, the governor of Nigeria's central bank said Monday.
Pointing to Nigeria's own reforms, Sanusi Lamido Sanusi said regulators around the world should force banks to change, rather than trying to nudge them through measures such as higher capital requirements.
"I think one of the major problems that Basel III will have is that it falls into the...trap of thinking that by simply creating certain capital guidelines you can alter behavior," he told an audience at the London School of Economics.
Sanusi said banks will continue taking risks if they think they can make money.
"But that does not mean that the risk will not bring down the institution over time," he said.
Basel III, a new set of rules requiring banks to hold bigger, more liquid capital buffers, is due to be phased in by numerous regulators around the world by 2019.
Nigeria has acted more forcefully to reduce risky behavior by banks, Sanusi said, such as forcing retail banks to sell off their investment banking activities, and requiring bank chief executives to step down after 10 years in the role.
-By Alex Brittain, Dow Jones Newswires; +44 20 7842 9203; alex.brittain@dowjones.com
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