“Could it be any clearer? Who sets (and has for decades) bank capital requirement in the U.S. and around the world? Governments and their institutions not bankers!!!”, Mike Perry, former Chairman and CEO, IndyMac Bank
July 12, 2016, Julia-Ambra Verlaine, The Wall Street Journal
EU Finance Ministers Warn Over New Basel Banking Standards
Concern that new standards disadvantage European banks against U.S. counterparts
Germany’s Finance Minister Wolfgang Schäuble said he supported the Basel review, “but we have to, of course, do this in a reasonable fashion.” PHOTO: STEFANIE LOOS/REUTERS
By Julia-Ambra Verlaine
BRUSSELS—European governments officially spoke out on behalf of the bloc’s banks on Tuesday, warning the Basel Committee—the global banking-standards setter—to avoid creating a new set of rules that would force banks to raise large amounts of further capital.
EU finance ministers in Brussels urged the Swiss-based supervisor to not bring about “a significant increase in the overall capital requirements for the banking sector” and do nothing “resulting in significant differences for specific regions of the world.”
Their comments are targeted at new standards expected to emerge from the Basel Committee of Banking Supervision in a review of current bank-capital requirements that it expects to publish by the year-end.
European banks are concerned that the new standards, dubbed “Basel IV,” would put them at a competitive disadvantage to their U.S. peers given structural differences such as where mortgages sit on the balance sheet. American banks tend to sell on their mortgages, whereas European institutions leave them on their balance sheets, creating higher capital requirements.
The statement was amended by ministers during Tuesday’s meeting. An earlier draft had specified that the reforms shouldn’t result in a significant capital increase for “the European banking sector.”.
Jeroen Dijsselbloem, the Dutch finance minister, requested that the tone be softened, according to an EU official, and even asked why the statement was needed at all. Germany and France, the main backers of the statement, pushed back.
Wolfgang Schäuble, Germany’s finance minister, said after the meeting he supported the Basel review “but we have to, of course, do this in a reasonable fashion. We still need a few banks in Europe.”
The ministers said it was important that the Basel Committee assessed the overall design of the overhaul, which includes revisions of how credit risk is assessed and constraints on banks’ use of internal models to assess risk.
They requested a quantitative impact analysis from Basel that took into account the overall effects of the expected changed, as well its impact on banking models used in different countries.
The Institute of International Finance, a Washington-based group that speaks for financial institutions in 70 countries, welcomed the ministers’ statement, saying that “disproportionate increases in capital requirements would unduly impair banks’ ability to finance stronger growth.”