Thursday 23 November 2017

Lobbying by France and Germany stalls banking shake-up

Mario Draghi
Mario Draghi

Silla Brush, Alexander Weber and Boris Groendahl

Global bank regulators have stalled the introduction of a final decision on tougher new bank capital standards in what is seen as a victory for Europe, particularly French and German banks.

The oversight board of the Basel Committee on Banking Supervision said yesterday that it had postponed a meeting scheduled for January 8 to allow for more debate on standards that are meant to prevent banks from gaming capital rules.

European Union policy-makers have campaigned against a major element of the reform package, a so-called capital floor, arguing that it would unfairly punish the bloc's banks and harm its economy.

The capital floor has emerged as the main flashpoint in several years of talks on rules intended to clamp down on banks' use of their own complex models to assess the risk posed by mortgages, corporate loans and other assets.

Big banks rely on the models to determine how much capital they need to fund their businesses. Regulators have grown increasingly sceptical of the accuracy of the estimates since the financial crisis.

But, with the US already seen taking a tougher view on capital positions, it was EU banks, especially in Germany, that have lobbied against the tougher standard.

Work on the post-crisis capital framework known as Basel III should conclude in the "near future", the oversight body said.

The delay could open the door to more lobbying from the financial industry and EU officials to soften the restrictions.

"Completing Basel III is an important step toward restoring confidence in banks' risk-weighted capital ratios, and we remain committed to that goal," European Central Bank President Mario Draghi, who heads the Basel Committee's oversight body, said.

The Basel Committee brings together regulators including the ECB, the US Federal Reserve and Japan's Financial Services Agency to set global standards.

Analysts at Morgan Stanley think French, German, Dutch and Nordic banks could be hit the hardest by any change because they have traditionally modelled minimal risks stemming from mortgages and corporate loans. (Bloomberg)

Irish Independent

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