EU Banks May Face Capital Hit in Basel Revamp, Dijsselbloem Says

  • Dutch finance minister says internal models must be robust
  • Bundesbank’s Dombret said no increase should be starting point

Dutch Finance Minister Jeroen Dijsselbloem said capital requirements for some banks may have to increase under new global rules, striking a dissonant note amid a growing European consensus on softening the impact of the revamped framework.

As it wraps up the post-crisis capital framework, the Basel Committee on Banking Supervision must ensure that banks’ internal models, used to measure asset risk, are of “sufficient quality so we don’t continue to conceal risk,” Dijsselbloem told reporters in Luxembourg on Tuesday. “So I can’t rule out that the consequence could be that individual banks in Europe will face higher capital requirements.”

Jeroen Dijsselbloem

Photographer: Andrew Harrer/Bloomberg

Bundesbank board member Andreas Dombret, by contrast, said in an interview with Boersen-Zeitung that the revised rules, due by year-end, mustn’t disproportionately affect European banks. “Not significant means an increase of zero percent or near to zero percent; that has to be the starting point for all negotiations,” he said.

As it completes the capital rules known as Basel III, the regulator is under instructions not to increase overall capital requirements significantly in the process. That promise, first made in January, left open the possibility that individual countries or banks could face a marked increase.

‘Negative Consequences’

Dombret’s comments are in line with the prevailing view among EU policy makers including German Finance Minister Wolfgang Schaeuble, who have insisted that the Basel Committee not only keep any overall increase in capital requirements to a minimum, but also ensure the rules have no “particularly negative consequences for specific regions,” such as Europe.

“We are in favor of Basel III, but we think it is unhelpful, even dangerous, to want to add layer upon layer of obligations on banks, in particular on European banks,” French Finance Minister Michel Sapin said on Monday.

Valdis Dombrovskis, the EU’s financial-services chief, has identified a range of issues that need fixing in the Basel Committee’s proposals, including restrictions on how banks use internal models to estimate risks from real-estate loans as well as corporate and infrastructure lending. A new capital floor, which caps the benefit banks can gain by measuring asset risk using their own models compared with a formula set by regulators, should be scrapped, he said.

‘Weak Spots’

Dijsselbloem said banks’ risk-assessment models need to be robust. “If some internal models prove to be weak, those banks will face higher capital requirements,” he said. 

Dombret said that for the Bundesbank, “it is clear that there can’t be a massive increase in one jurisdiction or country and elsewhere an easing. The rules can only count globally for the world banking system.”

The discussion is still ongoing, Dijsselbloem said.

“This could partly be panic about nothing,” he said. “But I don’t agree with the starting position of people who say the requirements shouldn’t rise. In that case we could just call off the whole exercise, and the weak spots in the internal models would remain hidden. I wouldn’t want that.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE