Merkel’s CDU, SPD Back Basel Debt Rule Opposed by German Lenders

Chancellor Angela Merkel’s bloc and her prospective Social Democrat coalition ally back leverage limits for banks advocated by the Basel Committee amid opposition from German lenders including Deutsche Bank AG. (DBK)

Merkel’s Christian Democrats and the SPD want Germany to adopt a so-called “leverage ratio” proposed by the Basel Committee on Banking Supervision, according to a draft coalition paper obtained by Bloomberg News. Merkel and the SPD plan to seal a coalition deal by Nov. 27.

Basel III capital adequacy rules should be applied “in a consistent, timely manner,” according to the paper. “That includes a binding upper limit on debt -- called leverage ratio -- which takes appropriate account of the nature of risks in a bank’s business model.”

Planned for operation in 2018, Basel III’s leverage ratio rules sets an absolute limit on banks’ debt, reducing their capacity to hide off-balance sheet risks. The Basel group is seeking to put a ceiling on indebtedness that will prove robust no matter how complicated a bank’s business model is, Stefan Ingves, its chairman, said in a Sept. 30 interview.

The coalition paper didn’t specify how the leverage ratio should take account of banks’ business models. Germany’s three-pillar banking system includes private banks, savings and cooperative banks and state banks. Building societies’ business model may assessed differently than other lenders, the Handelsblatt newspaper reported today, citing no one.

Deutsche Bank Chief Financial Officer Stefan Krause said the debt cap may defeat its aim by failing to differentiate the risks in lenders’ investments, Boersen Zeitung reported Oct. 24.

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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