One bank capital specialist at a bulge-bracket firm said: “The idea of [domestic regulators] not being able to gold-plate [capital rules] has been neatly stepped around. There is sufficient flexibility in the rules that they can.”
This could result in European banks operating under different rules from one another. The issue may potentially affect the willingness of a country to participate in cross-border bank bailouts involving institutions that have operated under lighter capital regimes than its own, experts said.
Emil Petrov, head of capital solutions at Nomura, said that although in theory recovery and resolution plans should be drawn up long before a bank is wound down, the process is likely to remain highly political. He said: “One should not rule out a scenario where a Member State refuses to cooperate in the resolution of a cross-border institution on the basis of real or perceived weaknesses in the supervision of financial institutions in another Member State".
Under CRD IV – the Capital Requirements Directive, which establishes the Basel III rules in law – national regulators have the power to impose additional requirements on capital using different buffers designed to offset a variety of risks.
This is Pillar 1 in the rules, with national regulators also able to make further requirements, should they believe more capital is needed to offset additional risks, under Pillar 2. Sharon Bowles, a Liberal Democrat MEP, said: “There are more variations in there than one would have liked and, in general, where that’s the case it’s usually the UK to blame".
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