Basel Seeks Deal on Rules for Nationally Systemic Banks
Global financial regulators, after reaching a consensus last year on tougher capital rules to govern banks that would roil the world economy if they collapsed, will try to hammer out a deal next week on controls for lenders with the potential to bring down national economies.
The Basel Committee on Banking Supervision plans to publish draft rules for so-called systemic lenders that aren’t covered by last year’s plans requiring global banks deemed too-big-to- fail to hold additional capital of as much as 2.5 percent of their risk-weighted assets, according to two people with knowledge of the discussions.
To reach a deal, nations in the group will need to bridge differences over whether the planned rules for these so-called domestically systemic banks should also apply to subsidiaries of the global lenders targeted last year, said one of the people, who declined to be named because the talks are private. The split centers on whether local regulators should be free to impose stricter capital rules on these units than those the parent bank must follow, one of the people said.
The euro area’s efforts to contain its debt crisis have been frustrated by weakness on some banks’ balance sheets, including those of smaller to mid-size lenders. Spain this month sought aid to cover losses in its banking industry, with its plea for funds coming after the International Monetary Fund said the country’s lenders would need at least 37 billion euros ($46.8 billion) to withstand a weakening economy.
The Financial Stability Board, which brings together regulators, finance ministry officials and central bankers from the Group of 20 nations, published a provisional list of 29 globally important banks that may face these surcharges, including Deutsche Bank AG (DBK), BNP Paribas SA (BNP) and Goldman Sachs Group Inc. (GS) It also said that these globally important lenders should be subject to tougher supervision.
Mark Carney, the FSB’s chairman, said earlier this year that regulators were considering extending such too-big-to-fail rules to cover lenders that are systemic at a national level.
“Some banks are systemic in their local market, but not more generally, and home state authorities will want to reduce the likelihood of failure,” Patricia Jackson, head of prudential advisory at Ernst & Young LLP in London, said in an e-mail. More national discretion is “appropriate given the range of different roles the banks may have.”
While regulators don’t intend to publish a list of these nationally important banks, the plans will include guidance for supervisors on identifying and regulating them. Regulators will discuss the plans at a two-day meeting starting June 19 in Stockholm, the people said.
The Basel committee, which brings together banking regulators from 27 nations including the U.S., U.K. and China, has been given the responsibility of drafting the measures.
Countries that have a large number of subsidiaries of overseas lenders in their territory have emphasized during Basel Committee discussions that they should be free to toughen capital rules on systemically important units of the largest banks, one of the people said.
Other members of the group are concerned that a globally systemically important lender might face a higher capital surcharge than intended because of extra requirements imposed on individual units.
“There is a desire to accommodate the needs for national regulators to reflect their own jurisdictional peculiarities in their risk assessment,” Richard Reid, research director for the International Centre for Financial Regulation in London, said in an e-mail. “This implies that there will be a large degree of national discretion involved.”
Should the Basel group agree on the draft rules, they would then seek public comment.
The group is also expected at its meeting to approve rules for the minimum amount of capital that banks should hold on derivatives trades that pass through clearinghouses, the people said, as well as draft margin requirements for derivatives trades that are carried out directly between buyers and sellers, without recourse to a clearing firm.
The committee will also continue discussions, expected to be concluded later this year, on how to amend a draft rule that would require lenders to hold enough easy-to-sell assets to survive a 30-day credit squeeze.
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