Monday 22 January 2018

'Stress test' rules face delay over Nordic fears

Frances Schwartzkopff

The European Commission will take an extra month to decide on rules affecting how banks calculate their capital ratios for so called "stress tests" after pressure from lenders in the Nordic region.

The delay follows an outcry from banker associations in Denmark, Sweden, Norway and Finland, who say a European Banking Authority (EBA) proposed reporting requirement for capital buffers would overstate the risks associated with their mortgage assets.

The commission had been due to decide on the EBA's proposal this month.

Nordic banks are thought to be among the best-capitalised in Europe and argue the EBA's approach doesn't reflect the Capital Requirements Regulation (CRR) approved by the European Parliament this year and ignores the safety of their mortgage assets. The mostly AAA-rated covered bonds that back the mortgages drew investors seeking refuge during Europe's debt crisis, driving down interest rates and underpinning borrowing in the Nordic region.

Scandinavia's financial industry, backed by the European Banking Federation, had appealed the EBA's proposal, and is urging the commission to reject it. The commission now has until the end of November to decide whether to approve all or part of the EBA's proposal, or ask for changes.

"We are confident that the European Commission and the EBA now will have time to reach an agreement on the reporting of the Basel 1 floor which will be fully consistent" with the CRR, Michael Friis, head of prudential regulation at the Danish Bankers' Association, said.

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European regulators first sought to impose a floor on capital levels in 2007, after Basel II rules gave banks more freedom to assign risk weights to their assets. Five years later, the EBA said it found "serious discrepancies" in national interpretations of the floor.

In Scandinavia, bankers' associations argue the EBA's proposal would hurt a region that has already taken more steps than most to fortify its financial industry against the risk of losses. Most Scandinavian lenders already exceed national capital requirements, which are stricter than Basel III rules. (Bloomberg)

Irish Independent

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