Friday

24th May 2019

Fresh capital rules will require banks to hold billions more in reserve

  • Banks will have to raise billions of euros in quality assets, but over about a decade (Photo: duncan)

Banks will have to retain billions of euros more in capital to avoid government bail-outs or even collapses in the future after central bankers and regulators meeting in Switzerland agreed some of the biggest adjustments in global banking regulation in years over the weekend.

On Sunday night, the oversight body within the Basel Committee on Banking supervision, the organ widely considered to be the key institution co-ordinating financial supervisory rules and standards, made up of the heads of central banks and national supervisors from 27 major economies, backed the new so-called Basel III rules, pushed for in the wake of the economic crisis.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

The committee backed a compromise position that would require banks to increase the percentage of 'core tier one capital', essentially a bank's safest assets made up of equity and retained earnings, from the current requirement of 2.5 percent of overall capital to 3.5 percent by 2013, then subsequently to 4.5 percent by 2015.

Adding another layer of security, banks will also have to create a capital conservation buffer of an additional 2.5 percent by 2019, bringing the total amount of capital equity requirements to seven percent.

The previous Basel II requirement demanded capital holdings that were insufficient to absorb bad loans on their books when the credit crunch struck three years ago.

A number of countries, in particular the UK and US, had pushed for higher capital requirements and a more rapid implementation period, but they faced substantial opposition from Germany, whose regional public banks are in a parlous state.

Ahead of the meeting, London and Washington were arguing for the rules to be in place by 2018 while Berlin was pushing for a 2023 deadline.

Critics fear that the rules will force banks to raise billions in fresh capital to cover the new rules while lending, particularly to small businesses remains weak.

With Europe's faltering growth, there is also the concern that banks will be unable to muster sufficient profits to deal with the existing toxic loans even without the additional pressure of tougher capital requirements.

The president of the European Central Bank, Jean-Claude Trichet, cheered the result, calling it a "fundamental strengthening of global capital standards."

But the banking lobby was less impressed and worried about the length of the transition period.

The European Banking Federation wrote a letter to Mr Trichet, warning that its members are "very concerned about the effect that [Basel III] may have on banks' lending."

"The transition, though, is the critical bit, as the rules suck money out of the economy," said Angela Knight, head of the British Bankers' Association.

"Even though the UK banks are in a much stronger place than most on capital, the Basel changes need to be implemented over a long timetable and very carefully sequenced to avoid prolonging the downturn," she said.

Supporters meanwhile fear that the new Basel III rules will not be put into any international treaty, and will depend on the willingness of governments to impose them as law.

A report on the subject to be voted on by the European Parliament's economics committee has already received a slew of amendments looking to water down the rules, introduce exceptions and lengthen the implementation schedule.

EU top court backs Canada trade deal in ruling

The European Court of Justice ruled on Tuesday that the EU-Canada free trade agreement, and its controversial dispute settlement mechanism, is in line with the bloc's rules.

EU and Japan in delicate trade talks

The Japanese PM comes to Brussels to discuss the first results of the new EU-Japan free trade deal, plus WTO reform - a sensitive topic before he moves onto Washington to face Donald Trump.

News in Brief

  1. UK's May announces June 7 resignation date
  2. Ireland votes for EU election and divorce referendum
  3. Report: May to announce resignation plan on Friday
  4. Leading politicians: time for EU to have female leaders
  5. Poll: Finland's Green party to surge in EU elections
  6. High demand for postal voting in Denmark
  7. Some EU citizens turned away at UK polling stations
  8. Switzerland unlikely to sign draft EU deal

Feature

Romania enlists priests to promote euro switchover plan

Romania is due to join the single currency in 2024 - despite currently only meeting one of the four criteria. Now the government in Bucharest is enlisting an unlikely ally to promote the euro to the public: the clergy.

Trump and Kurz: not best friends, after all

The visit of Austrian chancellor Sebastian Kurz to the White House on Wednesday showed that the current rift in transatlantic relations is deepening by the day.

Stakeholders' Highlights

  1. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  2. Nordic Council of MinistersEducation gets refugees into work
  3. Counter BalanceSign the petition to help reform the EU’s Bank
  4. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  5. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  6. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  7. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  8. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  9. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  10. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  11. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  12. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year

Latest News

  1. EU election results to trigger top jobs scramble This WEEK
  2. Don't tell the Dutch - but Timmermans 'won'
  3. EU says goodbye to May with 'respect'
  4. Strache scandal: how big a hit will Austrian far-right take?
  5. Italy train row exposes competing views of EU
  6. Dutch socialists on top in first EP election exit poll
  7. No usage data kept for EU parliament's 'Citizens' App'
  8. EU sanctions regime cannot be an 'EU Magnitsky Act'

Join EUobserver

Support quality EU news

Join us