22 August 2012

Germany puts pressure on talks in Brussels: Cabinet approves legislation on Basel III banking rules

To ensure that the internationally agreed stricter rules for banks can take effect as planned on 1 January 2013, the Federal Government today approved legislation drafted by the Federal Ministry of Finance to transpose the Basel III rules into national law, in advance of final agreement in Brussels.

Federal Minister of Finance Dr Wolfgang Schäuble explained:

"We Europeans committed ourselves within the framework of the G20 to bring the Basel III rules into force by 1 January 2013. By adopting Basel III, we are creating a new financial order for banks and making them more crisis-proof. The legislative package contains many new safety standards. The new act significantly tightens bank capital requirements and equips German bank regulators with new and more rigorous monitoring options and sanctions. The general public and taxpayers are better shielded from having to foot the bill for any failure in the banking sector. It is our firm conviction that implementing Basel III is a central project for bank regulation that we cannot afford to delay. Despite this, talks in Brussels on implementing the rules in the EU continue to drag on. As a signal of the weight we attach to this issue and how time is pressing for implementation by 1 January 2013, we have already set the German legislative process in motion today. I hope our partners in Brussels sense this urgency. I urgently appeal to the European Parliament, the Council and the European Commission to bring the trilogue to a quick and successful conclusion. This is what our citizens and our partners around the world expect of us."

The capital and liquidity standards proposed by the Basel Committee on Banking Supervision in December 2010 (known as the Basel III rules) raise the quality and quantity of capital that banks must hold. Banks that breach the German Banking Act also face more severe fines in future. In addition to classical powers such as withdrawal of banking licences and dismissal of bank board members, the maximum size of fines has been increased to a level that in principle makes it possible to strip banks of any profits gained from breaches of bank supervisory law. The Federal Financial Supervisory Authority (BaFin) is given significantly greater intervention options and sanctions.

The Basel III rules are to be introduced in the EU from 1 January 2013 on the basis of a fourth set of amendments to the Capital Requirements Directive (the CRD IVpackage). The amendments have been in the conciliation procedure between the European Parliament, Council and European Commission for some time.

In detail

The Basel III rules provide for a three-and-a-half-fold increase in banks’ core Tier 1 capital. This is supplemented by newly introduced capital buffers, where banks can be made to better prepare for cyclical downturns by building up extra capital when the going is good. In consultation with international partners, additional, even more rigorous capital requirements can be imposed on globally operating, systemically important banks or for systemic risks. Overall, the stronger capital base will make banks better able to absorb losses.

The new legislation also means that banks must better monitor and control the risks they take. Enhanced requirements are also placed on effective and prudent bank management. The banking business faces heightened standards of transparency, with the introduction of increased disclosure requirements to supervisory authorities for multi-million loans.

Heads of state and government committed at the November 2010 G20 summit in Seoul to adopt Basel III from 1 January 2013. European Union finance ministers agreed on a European regulation and directive at ECOFIN on 15 May 2012. The CRD IV Implementation Act (CRD-IV Umsetzungsgesetz) presented today transposes these European requirements into national law.

The national implementation is based on the resolutions adopted by ECOFIN on 15 May 2012. The Council (represented by the Council Presidency), the Commission and the European Parliament are still negotiating the final wording of the European legislation in what is known as the trilogue process. Adoption by the Council and the European Parliament is currently planned for October 2012. The Federal Government urges a quick conclusion to the talks and aims to underscore this urgency by setting the German legislative process in motion.

Press release

© Bundesfinanzministerium