Featured # Markets | 2 years ago

Basel Denies Banking Industry Accusations of Being too Optimistic

On Tuesday, the world’s top bank regulators defended reforms they plan to finalize in 2016, commenting that the goal was not to increase capital levels but rather to make lenders use similar measures to assess risk. The Basel Committee constructed of regulators from roughly 30 countries has come under intense pressure from the banking industry and European governments to bridle in the reforms it is now completing.

“Why are we doing this work? It’s not to increase capital,” Basel Committee Secretary-General William Coen reported prior to a two-day committee meeting starting on Wednesday.

“If we wanted to increase capital, then that is far easier than what we are doing at present,” he stated in an interview with reporters.

Coen said the changes were suppose to prevent the broad variations in the way banks use models to assign risk weightings to assets such as loans, which in result determines how much capital the lenders should hold. Though, banks have dubbed the new rules “Basel IV”, or a step change in capital requirements compared with the Basel III global framework implemented following taxpayers had to rescue banks during the 2007-09 financial crisis. Deutsche Bank has commented “Basel IV” unsettles investors and makes it difficult for banks to plan ahead.

Coen said the planned changes would restore optimism both in bank capital ratios and in the rules themselves.

The European Union, on the other hand, is concerned the new rules could lead to a large spike in capital requirements for its banks whose lending is the major source of funding for the economy. Basel’s oversight body commented on Sunday the work on the new rules was going in the right direction and it had reminded the committee of the need to ensure no large increase in overall capital. As of right now, there is no set definition of what this means, and while a number of big banks may face hikes in capital requirements, many will likely see minimal change.

The reforms, which complete Basel’s post-crisis face-lift of its capital rules, cover elements such as risks from credit or loans, that make up the majority of a bank’s capital requirements. Basel has yet to debate when the rules would be implemented. A 2019 deadline is seen as the earliest possible, while a later date may be more probable.


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