25 May 2017

Reuters: Global regulators expect deal soon on finalizing capital rules

The Basel Committee had hoped for a deal in January, but its members could not agree on how to set a capital backstop known as an aggregate output floor, which ensures a minimum level of capital.

The floor and other new rules complete Basel III, the world's core regulatory response to a global banking crisis that began in 2007. Much of Basel III has already been implemented.

U.S. President Donald Trump's call to ease regulation on banks to try to boost lending to the economy, and threats by the European Union to stop the new rules if they forced European banks to find large amounts of fresh capital, have cast some doubt over the reforms.

The committee's secretary general William Coen said setting the output floor was the "one piece of unfinished business".

A banking industry official in Europe said a deal could come at the committee's next meeting on June 14-15. It would need to be formally endorsed by its oversight body.

Banks have dubbed the package "Basel IV" or a step change in capital requirements, and the Group of 20 Economies (G20) ruled it should not significantly bump up capital. A deal in June could be presented to the next G20 meeting in July.

The remaining elements of Basel III seek to ensure banks are consistent in the way they assess risks from loans and determine the size of their capital reserves.

Regulators are tightening the rules on the use of computer models at big banks to tot up risks from loans and work out how much capital they should hold.

Basel had initially proposed that capital could not fall below a floor of 60-90 percent of the amount a bank would need if it had used the "standard" calculation used by the vast majority of lenders globally.

"We have narrowed the range down. There is a strong central tendency for a certain ratio," Coen told reporters. He singled out a 70-75 percent floor in his speech, the range bankers now expect to be agreed.

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