Banks win many converts to blunt Basel capital revamp
VIENNA: The world’s largest banks are into the home stretch of a long campaign to convince politicians and regulators that planned changes to their capital requirements will suffocate the industry and imperil lending and growth. All that lobbying is paying off when it counts.
The Basel Committee on Banking Supervision holds three crucial meetings in the next two weeks as it races to wrap up the post-crisis capital framework by the end of the year. The banks warn that proposed changes in how they assess risk would send capital requirements spiraling, and key policy makers from Europe to Japan are heeding their message.
The banks’ lobbying success was on display this week. Andreas Dombret said the Bundesbank, where he’s in charge of financial supervision, had considered the industry’s arguments and concluded that “there is a need to recalibrate” the Basel proposals. The European Union’s top two officials then insisted in a position paper before the Group of 20 summit Sept. 4-5 that the Basel Committee stick to its promise not to increase capital requirements significantly as it refines risk measurement.
“The banks feel that there is a tactical opening right now for the politicians to deliver a more favorable outcome than what has resulted so far from the technocratic process,” said Nicolas Veron, a senior fellow at the Bruegel think tank in Brussels. “Banks in different markets and geographies have differing objectives, but there is coordination.” Lobbying power The pressure on the Basel Committee, whose members include the Bundesbank and the US Federal Reserve, marks a comeback in banks’ lobbying power after they were cast as pariahs for years after the 2008 financial crisis. The industry says proposed revisions to the rules for assessing credit, operational and market risks, as well as limits on banks’ use of their own models to make these calculations, would hinder their ability to help fuel economic expansion.
The proposals now on the table could result in an overall increase of as much as 70 per cent in the capital banks must have, according to Shunsuke Shirakawa, vice commissioner for international affairs at Japan’s Financial Services Agency, another Basel member. That’s in line with the upper end of some industry estimates. Shirakawa said the Basel Committee needs to “make adjustments” to bring the new rules in on target.
‘Growing consensus’
The Basel Committee meets on Friday in Frankfurt and again Sept. 14-15 in Basel. In between, the regulator’s oversight body is set to convene. Progress at these meetings toward a consensus on the capital-rule revisions will be crucial for meeting the yearend deadline. If the EU’s position paper issued by Jean-Claude Juncker, head of the European Commission, and European Council President Donald Tusk, is any guide, G-20 leaders meeting in Hangzhou, China, may put additional pressure on the Basel Committee to moderate the impact of the rule changes. “There is growing consensus not only within the private sector, the industry, but within the regulatory community that the original proposals as presented were not fulfilling the mandate of not significantly increasing overall capital,” said Andres Portilla, managing director for regulatory affairs at the Institute of International Finance, a global trade group. “Hence there was a need to revise those proposals. That’s what we understand the Basel Committee is doing at present.”
The lobbying onslaught by bankers intensified over the summer as they fanned out across Europe to drive home the point that the Basel Committee had gone too far in clamping down on how banks assess risks from loans, mortgages and even cyber-crime in an attempt to prevent them from using complex models to game capital rules. The French Banking Federation and Association of German Banks teamed up in June and July to oppose the proposals, which they said would inflate capital requirements with “unprecedented consequences” for the economy. For the first time, the groups, which represent banks including BNP Paribas and Deutsche Bank, delivered a message to French Finance Minister Michel Sapin, and then met with his German counterpart, Wolfgang Schaeuble.
In Frankfurt, bankers met privately with Bundesbank officials, according to a person with knowledge of the talks. The Bundesbank shared an estimate the Basel measures would have on Germany’s banking industry showing that the impact would be widely spread across banks of different business models and size, the person said, declining to provide specifics.