Germany’s banks have launched a last-ditch effort to see off the threat of tough new international regulations, which they say could stymie their ability to function, curtail lending and undermine the health of Europe’s biggest economy.
The release of the information came a day ahead of a key meeting of the Basel Committee on Banking Supervision, which is putting the finishing touches to its new rule book, governing the capital and liquidity requirements for banks across the world.
Tuesday’s meeting, which will be rubber-stamped at a meeting of the Group of Governors and Heads of Supervision on Sunday, is expected to pin down the capital ratios.
Bankers say the minimum tier one capital ratio – the most commonly cited measure of a bank’s financial strength – is likely to be raised from 4 per cent to 6-8 per cent. The core tier one ratio, which strips out everything but the highest quality capital – principally equity and retained earnings – is set to rise from 2 per cent to about 4 per cent.
In addition, banks will have to maintain so-called buffers, in good times running at up to 3 percentage points, with an additional 1-2 percentage points required of banks that are deemed systemically important.
The reforms are particularly contentious for German banks, because public sector groups, in particular, have relied strongly on instruments called silent participations, which are not loss-absorbing – making them unsuitable as top-quality capital in the eyes of the Basel Committee in the light of the financial crisis.
The VÖB, the association of public sector banks, said there would be “dramatic consequences” for the German economy if there was not some retreat by Basel.
German negotiators will also be focused on keeping the tier one and core tier one ratios as low as possible.
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