EU to Push Basel on Impact of Bank Leverage, Liquidity Rules

EU Commissioner Hill on Brexit, Political Future

The European Union will push global bank regulators to ease key elements of a planned rule revamp, including leverage and liquidity standards, according to EU financial-services chief Jonathan Hill, who steps down this week.

Under Hill, the EU opened up the entire financial rule book for review, including contentious issues such as a cap on bankers’ bonuses. In response, the industry registered concerns about the impact of global rules on capital, trade finance, market liquidity and access to clearing, Hill said in his “swan-song” speech in Brussels on Tuesday.

The European Commission, the EU’s executive arm, will write to European Central Bank President Mario Draghi, who heads the governing body of the Basel Committee on Banking Supervision, to “ask for these issues to be looked at again,” Hill said, according to a text of the speech distributed in advance by his office.

Hill, who was sent to Brussels by U.K. Prime Minister David Cameron less than two years ago, said there is a risk to over-regulation of the financial industry and that “we don’t want the stability of the graveyard.” He’s leaving his post after concluding he couldn’t carry on in his role following Britain’s vote last month to secede from the EU.

Hill has said consistently that the EU should adapt global standards to suit its needs, specifically the push for jobs and growth. Valdis Dombrovskis, the commission vice president who’s taking over Hill’s responsibilities, has echoed that line and called on the bloc’s member states to “speak with one voice” to boost its influence on global issues.

Basel III

EU finance ministers called on Tuesday for the Basel Committee to take care as it wraps up work on the Basel III framework so that overall capital requirements don’t rise significantly and to avoid “differences for specific regions of the world.”

In his speech, Hill said the Basel Committee, whose members include the European Central Bank and the Bank of England, should weigh easier constraints on banks’ leverage and derivatives clearing, and determine whether rules have damaged liquidity in corporate bond and other markets. Smaller banks should be granted breaks from capital rules, while compensation rules for asset-managers should be reassessed.

On Hill’s watch, the commission shifted from legislating rules in response to the 2008 financial crisis to looking for ways to boost the flagging economy.

‘Lack of Growth’

“I concluded that whereas after 2008 the greatest threat to financial stability had been the financial crisis, over time the greater threat had become the lack of growth itself,” Hill said. “In other words, too little risk itself became a big stability risk.”

Hill’s requests for regulatory changes followed a public review of the rules that elicited a flood of industry lobbying and hundreds of pages of letters from banks, exchanges and trade associations.

“The crisis may have made the scale and the pace of regulatory change inevitable,” Hill said. “But the various layers of regulation could have been better aligned.”

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