LatinFinance - Special Edition - August 2013 - 87

New rules, old problems
What is good for Brazil, however, Setúbal
says, are Basel iii international regulatory
standards set to take effect in the country
on october 1. the new measures, when
implemented across latin america, will
make the industry “more resilient”, he
says, although given its underlying strength
will require only a minimal adjustment.
“latin america was already much more
prepared,” Setúbal says. “the gap from
where we were just before the crisis to the
implementation of Basel iii is much smaller
for us than for developed countries.”
as a vice-chairman of the Washingtonbased institute of international finance
(iif), a global banking lobby group, Setúbal
is no stranger to the debate over regulatory
reform.
But the view that latin america’s banking system is already adequately capitalized
and so will have no problem implementing
new capital requirements draws a sharp
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PRUDENT: Past crisis have taught
Latin American banks the virtues of risk management, says
Itaú-Unibanco chief executive,
Roberto Setúbal

in evolving and improving regulation,” he
says. “Regulation is key in order not to drive
players to take more risk.”
But he is cautious not to push the point
too far, acknowledging that there remain
many unknowns for the global banking
industry. “We still have not seen the results
and impact of all this new regulation and
especially on the capital requirements will
have in terms of making the system more
resilient.
“the level of risk will reduce with the additional level of capital. So overall, we will
have a much more resilient financial sys-

©REUTERS

widely known for his prudence, says itaú’s
improved performance does not mean the
lender is about to take on more risk. “two
years ago we announced that we were
changing our risk appetite, that we would
move out of higher risk segments and that
the benefits of this strategy would be down
the road,” he says. “We are not really considering at all changing our risk policy at
this point.”
Brazil’s lenders also face concerns that
embattled eBX Group, which is struggling
to contain its own financial crisis, will
default on bank loans. But Setúbal says that
even a “worst case” outcome – a default
by the troubled group – would not have
a major impact on the country’s banking
sector. “Given the level of exposure of
banks in Brazil to eBX Group, it is not really
a problem at all in terms of systemic risk,”
he says. “in the worst case scenario [of a
default] we would not change our guidance
in terms of provisions or losses,” he says.
the bank expects to provision between 19
billion reais ($9.2 billion) and 22 billion reais
for loan losses in 2013.
Setúbal nevertheless acknowledges that
the dramatic collapse of the eBX Group has
taken its toll on investor perceptions of Brazil. “eike Batista was pretty much associated with an image of a new Brazil as a very
high growth country with a lot of potential
where things could happen quite fast. and
the failure of eike [Batista’s company] definitely goes against this perception,” he said.
“this is definitely not good for Brazil.”

roberto setÚbal

“At the end of the
dAy, regArdless of
whAt kind of instruments you hAve, it’s
All About leverAge”

contrast with the position of banks in developed countries, who argue that the Basel iii
rules are too stringent.
Does he sympathize with his colleagues
in new York, london and elsewhere bemoaning the likely impact of new rules
on their business? or should they simply
learn the lessons of their latin counterparts? “there’s always something to learn,
especially in adapting and modernizing,

tem, there’s no doubt about that. there is
also a side effect. financial intermediation
will be more costly and this will have some
impact also in terms of credit expansion.”
Regulation – whether Basel iii or efforts
to break up “too big to fail” banks – is always
a trade off, he says. “at the end of the day,
you have to ask: how much insurance do
you want and how much are you willing to
pay for it? there’s no free lunch. the price
of this will come through the cost of credit,
because it will go higher. this is what we
have to balance.”
Yet ultimately, it’s a trade off that Setúbal
has already made. the downside – if it is
one – to such conservatism is that the world
of banking could simply become a duller
place. But that prospect doesn’t bother Setubal in the slightest: “Banking is a business
which is much closer to a marathon than a
sprint. it’s something that you have to look
for the long run,” he says. “this is my own
experience.” LF
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