16 March 2017

Financial Times: Bank safety rules deadlock may be easing

Germany, one of the loudest voices against the reforms put forward by the Basel Committee for Banking Supervision, this week softened its stance while a trade association for the banks themselves warned against the fracturing of regulatory approaches.

The moves come at a time when fears are rising that the global consensus around financial regulation will fracture in the face of the UK vote to leave the EU and the new Trump administration’s scepticism about prior reforms.

The Basel Committee has repeatedly failed to reach consensus on this latest reform package, particularly on a measure aimed at preventing banks from gaming capital rules, known as Basel III, that were imposed after the 2008 crisis.

But Andreas Dombret, a Bundesbank senior official, said on Wednesday that “real progress” had been made around the reforms, and long phase-in periods could help those banks that would be hardest hit by the changes.

And the Institute of International Finance, which lobbies for banks, said this week that the committee had done “tremendous work to make our financial system safer”.

The delay is partly because the Trump administration has not yet named a top banking supervisor to represent it in the discussions.

Supervisors in the US and their European counterparts have not reached agreement on the “output floor” that would limit the extent to which banks can use their own models to calculate the riskiness of their lending. The floor is designed to prevent lenders from using risk estimates that are too far below the outputs of a standardised model devised by regulators.

Banks — particularly those in Europe that would be hardest hit — believe that the new reforms are so punitive that they are a way of raising capital by stealth, but policymakers disagree.

Full article on Financial Times (subscription required)

Andreas Dombret speech: Basel III – goal within sight

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