EU ministers and regulators squabble over stricter banking rules

How strict are the stricter rules for banks? There is extensive debate about this in the European Union. This Tuesday, the finance ministers of EU member states Agree to a proposal. According to critics, this entails a greatly watered-down version of previous internationally agreed agreements on banks’ capital reserves.

Next year, ministers will have to agree on the final rules, with the European Commission already making the first move last year, and the European Parliament providing its contribution in the coming months.

The debate is about to what extent the ‘final’ Basel III rules, also known as ‘Basel 3.5’, will be adopted for European banks. international organizers It was already agreed under the flag of the Basel Committee in 2017 About these rules, since it was agreed that banks around the world would have to hold more capital from 2023. The idea was that this would reduce the risk of a credit crunch, as happened in 2009, more compared to the Basel rules 3 “First”, introduced in 2010.

Read also: Banks should have more capital

These rules have yet to be transformed into concrete measures in various fields. This process is now in full swing. It now appears that a less stringent approach is being taken in Europe than regulators had in mind in 2017.

Less space for the banks themselves

The idea behind Basel 3.5 is that banks are given less room to make individual adjustments to capital requirements. Until now, banks were allowed to calculate how much capital they had to allocate to their loans on the basis of their own internal forms approved by the regulator. This means, among other things, that banks with many mortgages – loans with “secure” collateral – hold relatively fewer hedge capital than banks with a higher-risk portfolio. Under Basel 3.5, it was agreed that no matter how “risk free” the loan portfolio, according to the bank itself, the minimum capital should always be maintained. As a result, European banks may have to allocate 15 per cent of the additional capital.

In the proposal submitted by the European Commission last year, and ministers this Tuesday, the introduction of the “capital floor” was postponed. The idea of ​​Basel 3.5 was that this floor would be implemented in phases as early as 2023 within five years. But in the proposal submitted by the European Commission last year, and ministers this Tuesday, the introduction of the “capital floor” was postponed and extended from 2025 to 2032. A number of other rules have also been relaxed or deferred in the proposal.

The idea behind the amendments is that the rules are therefore more adapted to the specific European situation. Banks here have a relatively higher number of mortgages on their balance sheets than, say, the United States.

But the “dilution” of Basel 3.5, as opponents call it, is not without protest from the organizers. Head of European Banking Supervision, Andrea Enria at the European Central Bank and José Manuel Campa at the European Banking Authority, shouted in a blog post last week He urges European leaders to “stick to what has been agreed upon internationally”. The two noted that Europe was already at the negotiating table that led to the agreements in 2017, in which the European situation was already taken into account. “Thus claims that the agreements are not appropriate for the EU financial sector are misleading.”

Supporters of the amendments – including bank lobbyists – argue that the amendments will make banks better able to support the EU economy. After all, if the banks had to hold additional capital, then this money could not be used for loans.

Enria and Kampa wrote last week that the full introduction of the Basel Accord is good for the economy. “Strict rules make banks strong. Strong banks are better able to serve businesses, citizens and the economy as a whole.” European Central Bank Vice President Luis de Guindos said on Tuesday before the meeting of finance ministers that “any change in itself may look like an isolated hole in the dam that protects the banking system. But together, all these holes will affect the solidity and stability.”

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