Banks May Face 10% Basel Capital Burden Increase, Heim Says

Updated on
  • Societe Generale’s Heim commented on Basel revamp in New York
  • Basel debate focused on defining ‘significant’ increase

Banks may face an increase of about 10 percent in their capital requirements as a result of the overhaul of risk-assessment rules under way at the Basel Committee on Banking Supervision, according to Philippe Heim, chief financial officer of Societe Generale SA.

The Group of 20 nations and the Basel Committee’s oversight body “want to concretely deliver reform improving the comparability of risk-weighted assets, but with no significant capital increase,” Heim said on Sept. 12 at a conference in New York. “The whole debate is all about what does it mean: no significant capital increase. We begin to hear that it should be an inflation of around plus 10 percent.”

The Basel Committee’s oversight body, led by European Central Bank President Mario Draghi, met on Sept. 11 and reiterated its instruction to the regulator 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 or banks could face a marked increase.

The Basel Committee 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.

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 last week that the Basel Committee should freeze plans to overhaul capital rules for five years to avoid a “drastic” reduction in lending by European banks.

“What we understand is that all market participants will have full clarity on this, we hope, touch wood, beginning of Jan.,” Heim said. “The past months have been pretty intensive in terms of exchange with all the stakeholders.”

William Coen, secretary general of the Basel Committee, told reporters on Tuesday that the regulator’s goal is not to drive capital requirements higher as it finishes up Basel III.

“If we wanted to increase capital, that would be far easier than what we’re doing at present,” Coen said. “We’re doing this work is to reduce risk-weighted asset variability. And why are we doing that? To restore confidence in the risk-weighted capital ratios and to fully restore credibility to the capital adequacy framework.”