Banks in EU May Be Pushed to Hold Extra Capital in Credit Booms
Banks may be pushed by the European Union to hoard extra capital buffers beyond minimum requirements proposed by global requlators last month.
Lenders may be expected to hold the extra capital during boom times in a bid to prevent another financial crisis, said Chantal Hughes, a spokeswoman for EU Financial Services Commissioner Michel Barnier. Banks may be banned from paying dividends and bonuses if they fail to meet the targets to stem the flow of cheap money, under plans to be published today.
“A vital lesson from the financial crisis is that banks must hold sufficient levels of capital,” said Hughes. The European Commission will seek views on the proposals for banks in the 27-nation EU, she said.
The Basel Committee on Banking Supervision gave regulators the option of introducing an additional capital buffer to curb the excessive lending that led to the financial crisis. The buffer would also help lenders absorb losses in a recession. The Basel proposals are the strictest since nations began regulating the global banking system together in 1974.
The European Banking Federation, an industry lobby group, said it’s already signaled its “serious concerns at the imposition of yet another layer of buffers” to the Basel committee. “New European measures would only make the matter worse,” it said in an e-mailed statement.
The Basel group agreed that the so-called countercyclical capital buffer could be as large as 2.5 percent of bank’s assets, and that it should be made up of common equity “or other fully loss absorbing capital.”
“The commission is acutely aware of the need to ensure that capital rules are well thought through, that is why we are having this consultation,” Hughes said.
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