Basel Capital Revamp Endorsed Without Assurance Sought by EU

The central bank governors overseeing the Basel Committee on Banking Supervision backed the “broad direction” of the regulator’s bank capital-rule revamp, while stopping short of providing assurances sought by Europe on the overhaul’s impact.

The oversight body led by European Central Bank President Mario Draghi met on Sept. 11 and reiterated its instruction to the Basel Committee to “focus on not significantly increasing overall capital requirements” as it wraps up work on the framework known as Basel III. That promise, first made in January, left open the possibility that individual countries, regions or banks could face a marked increase.

German Finance Minister Wolfgang Schaeuble last week was the latest European policy maker to insist that the Basel Committee ensure its revised rules have no “particularly negative consequences for specific regions.” That message was taken up by leaders of the Group of 20 nations, who said after a meeting this month that the Basel Committee should promote a “level playing field.” The statement on Sunday didn’t adopt that language.

The Basel Committee, whose 28 members include the ECB, the U.S. Federal Reserve and the Bank of England, is racing to finish work on the post-crisis capital framework by the end of the year. After the meeting of the oversight body, known as the Group of Central Bank Governors and Heads of Supervision, the committee will convene a two-day meeting on Sept. 14.

‘Significant Steps’

“The GHOS endorsed the broad direction of the Committee’s reforms,” according to a statement released after the Sept. 11 meeting. “The GHOS discussed the Basel Committee’s ongoing cumulative impact assessment and reaffirmed that, as a result of this assessment, the Committee should focus on not significantly increasing overall capital requirements.”

Stefan Ingves, chairman of the Basel Committee and governor of Sweden’s Riksbank, said the regulator has “taken significant steps over the past few months towards finalizing the post-crisis reforms by the end of the year.”

Banks warn that proposed changes in how they assess credit, market and operational risks would send capital requirements spiraling. Credit Agricole SA Chief Executive Officer Philippe Brassac said the Basel Committee should freeze plans to overhaul capital rules to avoid a “drastic” reduction in lending by European banks. 

“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,” Brassac said in an article prepared for a conference in Bratislava.

The Fed is one of the main supporters of Basel’s efforts to rein in banks’ leeway in calculating their risk weightings. Fed Governor Daniel Tarullo told CNBC in a Sept. 9 interview that the proposals could lead to higher requirements for some banks.

“We agree with the premise of the Basel Committee that this exercise was about not raising capital requirements,” Tarullo said, according to a transcript on CNBC’s website. “But if there are banks, internationally active banks, which are not meeting the current capital requirements, this exercise shouldn’t be a validation of that. Instead, it should be the occasion for making sure that they bring their capital up.”

— With assistance by Rainer Buergin, and Silla Brush