Carney Says News of Basel's Next Big Wave Isn't Fit to Printby
Basel regulator working to `clean up the system,' Carney says
Banks have often taken the opposite view on pending regulation
Are the global bank regulators in Basel planning to release a salvo of new capital rules before the last round, known as Basel III, is fully in force? Not if you ask Mark Carney.
“There is no Basel IV,” Carney, governor of the Bank of England, told reporters in London on Tuesday. “I’ll say it again; I’d like you to print it. There is no big wave of additional capital. There are things that need to be done in order to clean up the system.”
Some bankers take a different view of the mass of regulatory work in the pipeline at the Basel Committee on Banking Supervision. “Basel IV is coming,” Laurent Mignon, chief executive officer of Natixis SA, said earlier this year, when the issue was raised on more than a dozen European banks’ earnings calls.
At the heart of this debate is the Basel committee, which meets Dec. 1-2 in New York with a full slate of major policies to discuss, including revising the standardized approach to measuring credit and operational risk. The regulator is also wrapping up work on its overhaul of capital rules for the trading book. The Basel group brings together regulators from around the world, including the U.S. Federal Reserve and the European Central Bank.
Rules for risk-modeling and capital assessment need to be tightened to remove wide variation of results across banks and countries under existing rules, said Carney, who also heads the global Financial Stability Board.
“We will not increase capital in the U.K. because of those sensible adjustments,” he said. “For individual firms, depending on whether they’ve been stretching the limits of risk-weight variance, they may have to adjust, but not for the system as a whole.”
Basel’s Fundamental Review of the Trading Book has come in for heavy criticism from some bankers, who warn that capital charges for market risk may multiply under the new rules, crimping their ability to lend. A trio of industry groups released an impact study in October that showed the capital requirement for market risk would be 4.2 times the current level.
Basel countered with its own study that showed a 4.7 percent increase in overall capital requirements, meaning a bank with a hypothetical total capital requirement of 10 percent would face a 47 basis-point surcharge.
Carney said the industry’s concerns are exaggerated.
“Some institutions have taken extreme versions of the previous consultation and read that as that’s what’s going to come,” Carney said. “But that’s not the likely outcome. We see the Fundamental Review of the Trading Book proceeding well. We see it as quite modest in terms of its overall impact in the U.K.”
Banks’ experience of previous Basel committee consultations may have colored its expectations, Carney said.
“The way the Basel committee used to operate in consultations was they go to the bunkers of Basel, come up with the answer, put out a piece of paper which was the answer as far as they were concerned, and that was called a consultation,” he said. “They would get some letters in; they wouldn’t necessarily open them; and then they’d say, ‘Well, the answer is the answer. We already told you the answer, and this is what it is.’ That has changed.”