Wednesday, 12 October 2016

Global banking reform must not cap capital buffers – Eurogroup head

In World Economy News 11/10/2016

New global banking rules should not include set limits to increases in capital adequacy requirements and should focus on improving banks’ internal risk assessment models, the head of the euro zone finance ministers’ grouping said on Tuesday.
The Basel Committee, banking supervisors from nearly 30 countries, is due to complete its reform, known as Basel III, by the end of 2016. The new rules are meant to make the sector more financially sound by reducing reliance on internal risk models.
“The outcome of the process should be that we have good quality standards for internal models and in the individual cases of some banks it may lead to higher capital requirements,” Eurogroup President Jeroen Dijsselbloem told reporters before an EU finance ministers’ meeting that will address the issue.
European banks and regulators have warned against an excessive increase in capital requirements that could affect mostly European banks because they use internal models more than their U.S. rivals, which rely more on standardised methodology.
Asked whether there should be a set limit to any hikes in capital requirements, Dijsselbloem said: “My approach is different”.
Reacting to France’s push for a 5-percent limit, he said: “I haven’t heard it. It does not make sense.”
A proposal for a 5-percent limit was included in a EU finance ministers’ draft statement but was removed from the final conclusions of a meeting in July, as member states could not agree on the issue.
When asked about the possibility of a set limit, the Slovak finance minister Peter Kazimir, whose country holds the rotating presidency of the EU, reminded reporters of the conclusions of the July’s meeting, where ministers simply urged the Basel group to avoid a “significant increase” in overall capital requirements but set no limit.
“It must be done in an intelligent way,” Kazimir said on his arrival to the EU meeting in Luxembourg on Tuesday.
Officials at banking trade body AFME estimated the new rules were likely to increase the capital buffer held by lenders by at least 6 percent on average. The French and German banking federations said the capital requirement increase might reach 50 percent for some banks.
Two weeks ago, the EU commissioner in charge of financial services, Valdis Dombrovskis, set the EU red line for the Basel reform and openly criticised the text prepared by the Basel committee so far.
After that speech, France, backed by Germany, requested the EU Council to add a discussion on the Basel reform to the EU finance ministers’ meeting.

Source: Reuters (Editing by Alastair Macdonald and Louise Ireland)