Europe’s Banks Seek Basel III Resolution

Terry Flanagan

It appears that Europe’s banks are adopting a stance of muted acceptance over Basel III, as the incoming bank liquidity rules look set to be introduced in the region after last-minute hold-ups in Brussels look like being resolved.

The European parliament and the Council of Ministers are thought to be nearing agreement over the final obstacles holding up adoption of the Basel III accord into European law.

“Further delay would [be] detrimental,” said Guido Ravoet, chief executive of the European Banking Federation, an industry body. “At least now, banks will know soon how much more capital they will need to hold, what quality that capital must have and the nature of the liquidity buffers they must build up.”

The U.S. has also still to determine its own final interpretation of the global Basel III capital requirements, which were watered down significantly in January by the Basel Committee on Banking Supervision, a group of central bank governors from the world’s leading economic nations who drafted the Basel III document in 2009, with a broadened definition of liquid assets and an extension to the deadline in which banks have to meet these new rules.

“The relaxation of the Basel III capital rules has helped in giving the [bank] sector an extra boost,” said Michael Hewson, senior market analyst at CMC Markets, a provider of financial spread betting in the U.K..

The G20 group of rich nations had originally planned to bring in the Basel III rules from this January, but that has now been pushed back 12 months to January 2014. Once the proposals are formally agreed, it will start the biggest shake-up of the banking system since the global financial crisis.

Banks will be forced to hold more high-quality capital needed to cushion these institutions against any future shocks although banks themselves fear that it will be much harder to operate in this new risk-averse landscape.

To bring the Basel III regulatory standards into European law, the European Commission drafted the Capital Requirements Directive, known as CRD IV. The CRD IV is currently also causing controversy within the banking sector with its latest deal to impose a banking bonus cap that critics say will see Europe’s finest banking talent head away from its borders to be better remunerated for their jobs.

Politicians, though, are still very much on the warpath in Europe with regard to bankers and their perceived role in the financial crisis—and the introduction of a banking bonus curb may well prove to be a vote-winner, if nothing else.

“The failure of banks to self-regulate on bonuses or to exercise restraint has now resulted in a bonus cap with a 1:1 salary to bonus ratio which aims to put an end to the excessive risk culture which led to taxpayer bailouts and bank collapses,” said Arlene McCarthy, a left-of-center U.K. MEP who is also vice-chair of the parliament’s influential Economic and Monetary Affairs Committee.

Related articles

  1. Basel III's capital charge is doing more harm than good to bank-owned FCMs

  2. From The Markets

    Basel to Squeeze Banks

    New regs will prompt banks to shed riskier assets and decrease risk-taking.

  3. Regulations have shrunk the European repo market