Banking executives worldwide regard the costs of regulation as the greatest threats to their business, a study has found.

A survey of 440 bankers and banking experts in 54 countries in the Americas, Europe, the Middle East and Asia found that "too much regulation” was cited as the biggest threat to bank profitability.

The study, conducted by the Center for the Study of Financial Innovation and backed by PricewaterhouseCoopers, found that regulation climbed to the top of the chart of concerns compared with the 6th rank in previous year, leaving behind credit risk and currency fluctuations.

"The survey showed that the dramatic rise in regulation is dominating the concerns of most bankers," said John Hitchins, a partner with PWC’s banking and capital-markets practice in London. He stressed that banks are worried that the costs needed for meeting regulatory requirement are exceeding the benefits to investors, customers or even banks themselves.

The number of rules that all companies have to observe has increased enormously, a rise prompted by several corporate scandals, including those involving Enron and WorldCom. But banks perform additional tasks of preventing money-laundering, limiting excessive risk and educating consumers about investments.
Last year, a survey conducted by KPMG found that global spending by banks to fight money-laundering had risen on average 61% over three years, with many banks expecting costs to rise another 40% by 2008.

A complex document that is part of European regulatory legislature comes into effect in 2007. Basel II a regulation arising great concern shows how much money banks must have in reserve to cover trading positions. Getting ready for Basel II is costing banks £15 million to £95 million (€21.7 million to €137.7 million) each in new hires and computer systems, said Richard Smith, a partner at PWC specializing in risk management and Basel II.

Basel II preparations are predicted to be the biggest spending project that any bank in Europe has ever undertaken.