EU wants changes in reform of global banking rules

BRUSSELS: A planned reform of global banking rules being discussed by the US, Europe, Japan and other major economies risks negatively affecting European banks and needs to be changed, the EU financial services commissioner said yesterday.

The Basel Committee, a body of banking supervisors from nearly 30 countries, set the year-end as the deadline to conclude an overhaul of existing banking rules – known as Basel III – meant to make the sector safer.

But opponents, mostly in Europe and Japan, reckon the review goes too far, as they fear it disproportionately increases how much capital banks must hold against risk.

“As things stand, the proposals Basel has issued for consultation would imply significant capital requirement increases in all areas,” EU commissioner Valdis Dombrovskis told a banking conference in Brussels yesterday, in what is so far the most explicit criticism to the review made by a European official.

EU finance ministers had already called for the reform to not significantly increase capital requirements for banks but have so far fallen short from criticising publicly what is on the table from global regulators.

“We want to avoid changes which would lead to a significant increase in the overall capital requirements shouldered by Europe’s banking sector,” Dombrovskis told the conference organised by the European Banking Federation.

European bankers and officials fear the changes will put European banks at a disadvantage against their US rivals, as their large loan portfolios would look more risky, and hence need more capital, than US banks, which provide more bond financing and package mortgages on for trading elsewhere.

Bankers nicknamed the reform as Basel IV for the additional requirements it imposes, up to 50% more than current capital buffers, the French and German banking federations estimated.

Contrary to the US, banks still represent by far the main source of funding for companies in Europe. – Reuters