BANKS in the European Union may win a partial reprieve from Basel capital and liquidity rules if lenders in other regions, such as the US, are allowed to escape the full force of the measures.
EU lawmakers are weighing safeguards to prevent lenders in the region from being left at a competitive disadvantage when a global accord by the Basel Committee on Banking Supervision is implemented, according to a document obtained by Bloomberg News.
The overhaul of capital and liquidity rules, known as Basel III, was designed to prevent a re-run of the crisis that cascaded across financial markets after the collapse of Lehman Brothers Holdings Inc in 2008.
EU Financial Services Commissioner Michel Barnier has already promised to be "vigilant" about the way the US applies the Basel measures that were approved in 2010.
The European Banking Authority and the European Commission, the 27-nation region's executive arm, should be empowered to "take appropriate measures in order to adjust to the level of global competition," according to the document by Othmar Karas, the lawmaker who is guiding the adoption of the law through the European Parliament.
The Basel committee said on April 3 that the US and China were among eight nations lagging behind in their implementation of its rules. The US still hasn't fully put in place an earlier round of changes agreed on by the Basel group in 2004.
The London-based EBA should "regularly assess" how well other nations apply the requirements, Mr Karas proposed in the document.
The report "strongly indicates that there is a lack of confidence that all regimes will ultimately commit to internationally agreed rules if these are seen to conflict with domestic priorities or individual national characteristics".
Meanwhile, US Federal Reserve Governor Daniel Tarullo has called for the Basel III rules to be "implemented rigorously".
The Federal Reserve declined to comment yesterday on Mr Karas' proposals.
While the EU has raised concerns about US implementation on Basel rules, American banks and regulators have also pointed to potential concerns over the way they are applied in Europe.
Some US bankers, including Jamie Dimon, chief executive officer of JPMorgan Chase & Co, have questioned the way in which European banks measure the risk of losses on their assets, and therefore how much capital they need to hold. (Bloomberg)