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05/12/2016

European Parliament to side with banks and reject new Basel banking rules

Euro & Finance

European Parliament to side with banks and reject new Basel banking rules

Deutsche Bank, which has had its fair share of difficulties lately, is an outspoken critic of the proposed reforms.

[Bjorn Laczay/Flickr]

The European Parliament is expected on Thursday (10 November) to announce that it does not intend to accept new international standards that would require banks to have greater capital reserves. EurActiv’s partner Milano Finanza reports.

The European Union is increasing its pressure on banking regulators to water down new capital reserve rules, as the bloc aims to protect banks from a further increase in costs.

On Thursday morning, the Parliament is set to announce that it will not support new international standards (known as Basel IV), in their current form, that stipulate banks must hold greater capital reserves.

Roberto Gualtieri, head of the Parliament’s monetary committee, said “We want to give this clear message before the standard is defined and we will be called to transpose it”, in line with EU law. In a Berlin interview last week, he added that legislators want to make sure that there is a “level playing field” between the United States, Europe and other regions.

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European banks have warned that the proposals on how to evaluate credit, as well as operational and market risks, would lead to hundreds of billions of dollars in additional capital costs, reducing the extent to which financial institutions could lend money.

Banking giants HSBC Holdings, Deutsche Bank, Societé Générale and Credit Agricole have all lobbied on a global scale against the proposals, informing regulators of the devastating impact the new rules could have on revenues and margins.

The expected vote is the latest step in a campaign by European politicians and regulators to change the rules that determine how banks evaluate asset risk and, as a result, how much capital they need in reserve.

The proposed standards have become a delicate point of discussion between regulators from Tokyo to Washington, as the finishing touches to rules established after the 2008 financial crisis are still negotiated.

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The Basel Committee on Banking Supervision, whose members include the European Central Bank and the US Federal Reserve, are trying to finalise the new standards (dubbed Basel IV) on capital requirements before the end of the year. The Committee promised in January that the overall need for capital would not be increased significantly.

Secretary-General William Coen said at the Parliament on Wednesday (2 November) that the Committee would continue the reform process and said it was “well on track” to finalise the proposal by the end of the year.

The European Commission, which has no say in the reform process but which will decide how to implement it, has already requested major changes to the amendments.

Furthermore, several European officials at a Basel Committee meeting in September warned that they would not adopt the deal currently on the table unless the changes are carried out, leading to increased fears that global banking rules will fragment further.

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The new standards are expected to contain industrywide rules on risk assessment calculations that would trump the “internal models” currently used by banks and which can lead to institutions being undercapitalised.

In a draft resolution, the Parliament highlights that the Committee’s capital requirements revision should respect its promise to not significantly increase the amount of capital needed, while still ensuring a level playing field.

The draft warned that the group “is concerned that the reform package in its current state would not comply with the two principles listed above, and asks the ECB to ensure the new standards’ compliance.”