Credit Agricole Demands Freeze on Overhaul of Capital Rules

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  • CEO seeks a five-year halt to the Basel Committee’s plans
  • BNP’s Bordenave warns rules could ‘damage financial stability’

The Basel Committee should freeze plans to overhaul capital rules to avoid a “drastic” reduction in lending by European banks, Credit Agricole SA Chief Executive Officer Philippe Brassac said.

“The priority for Europe is to promote growth and jobs, and banks stand ready to contribute to it,” Brassac said in Eurofi Magazine, published for a conference this week. “The planned revision of the capital framework must be suspended for five years to give time to the current reforms to bear fruits and assess whether further revisions are needed.”

The Basel Committee on Banking Supervision meets this month as it races to complete the post-crisis capital framework by year-end. Bankers -- backed by some regulators -- are increasingly voicing concern that Basel’s latest proposals will force lenders to raise billions of euros of new capital, contravening its commitment not to increase requirements “significantly.”

The committee is reviewing leverage limits and the way credit, market and operational risks are measured. The regulator describes this as putting the finishing touches on the framework known as Basel III, put in place after the 2008 crisis, while bankers say the overhaul is so extensive that it amounts to a new wave of regulation. They’ve dubbed it Basel IV.

Philippe Bordenave, chief operating officer of BNP Paribas SA, added to criticism of Basel’s proposals already voiced by executives including Iain Mackay, group finance director of HSBC Holdings Plc and Marcus Schenck, Deutsche Bank AG’s chief financial officer.

In a separate comment in the magazine, Bordenave said the committee’s current proposals on how banks should assign risk weightings to their assets would increase capital requirements “to an extent that would damage financial stability and growth, in an economic environment which is already fragile.”

Bordenave blamed current economic weakness on banks’ efforts to deleverage after the crisis as regulators ramped up capital requirements. The deleveraging in turn prompted the European Central Bank to slash interest rates, thus reducing profitability and leading to more cost cutting and more shrinkage.

“If this negative spiral were to be repeated, most European banks would not be able to rely on retained earnings nor on raising capital in the market to meet the new target,” Bordenave said. “The only solution left would be a new wave of deleveraging” of as much as 10 trillion euros ($11 trillion), triggering a credit crunch and another negative spiral, he said.

Those arguments are gaining traction with the authorities. Writing separately in the magazine, John Berrigan, a deputy director general of the European Commission, the bloc’s executive arm, said Basel is looking for “a better balance between risk sensitivity, simplicity and comparability.” He underlined that the changes to the capital framework “should not significantly increase the overall capital requirements for banks.”

The European Commission is planning to propose a package of measures this year covering “many, not all” of the changes that are under review at the Basel Committee, Berrigan said.

“Any agreement that the BCBS may reach this year on these outstanding issues will not be included in the Commission’s upcoming legislative proposal, but will be considered for implementation at a later stage,” Berrigan said. “We will then carefully study the possible impact of any rule changes on financing of the economy.”