Trump Transition Stalls Global Revamp of Bank Capital Standards

  • EU awaits new U.S. interlocutors in Basel talks, Guersent says
  • U.S. lawmaker calls on Fed to halt talks while Trump beds in

A revamp of global bank capital standards is on hold during the change of administration in Washington, with U.S. and European Union negotiators locked in a “fundamental disagreement” over how to stop banks gaming the rules, according to a senior EU official.

“Where we can have an agreement will depend on where we will have an interlocutor on the U.S. side” who can “take decisions for the U.S.,” Olivier Guersent, a director-general of the European Commission, the EU’s executive arm, said on Wednesday in Brussels. “We all have democratic processes, and these things happen. So we will simply wait.”

President Donald Trump has stepped up his criticism of financial regulations, vowing to do a “big number” on the 2010 Dodd-Frank banking overhaul. He has also begun to pull the U.S. out of international agreements such as the Trans-Pacific Partnership trade deal. A key U.S. lawmaker has called for the Federal Reserve and other regulators to halt talks on international agreements until Trump has weighed in and replaced top negotiators.

Talks in the Basel Committee on Banking Supervision have bogged down, with no fresh compromise on the table for how to stop banks using their own complex models to reduce their capital requirements, four people familiar with the matter said last month. The U.S. insists on tough curbs, while the EU, whose major banks would take the biggest hit under the new rules, is pushing a softer line.

The current stalemate does not indicate a wavering U.S. commitment to the negotiations, one of the people said.

‘Concrete Indications’

Guersent’s comments echoed those made last week by Valdis Dombrovskis, the EU’s financial-services chief, who said the EU is “counting on the new U.S. administration to explain their priorities so that we can make progress” at Basel. “At this stage we do not have any concrete indications” from the U.S., he said.

At issue is a so-called output floor, a blunt check on how much lower banks’ estimates of risk can be compared with those produced by standard formulas set by regulators. Under a compromise proposal floated in early December, modeled results can’t drop below 75 percent of the result yielded by the standardized approach. The floor would phase in from 55 percent in 2021 to the full 75 percent in 2025.

Guersent said that once the changing of the guard in Washington is completed, the talks could reach a relatively quick conclusion because the dispute focuses on a single issue: the output floor. But that may mean the negotiations collapse.

Missed Deadline

“When you only have one issue to discuss, either you find an agreement or it breaks completely, but it doesn’t need to be long,” he said.

The Basel Committee has already missed a January deadline to deliver the new rules, and is now targeting a deal in the “near future.” Once an agreement is reached, the regulator’s oversight body, whose next meeting could come in mid-March, must approve the final standards. The Basel Committee meets next on March 1-2.

“I don’t believe that the failure to reach an agreement in January results from a categorical lack of willingness of European committee members to agree to such a measure,” Guersent said. “My impression is rather that a number of other members have too distant ideas from ours about what level of floor could be reconciled with the object of safeguarding risk sensitivity.”

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