EBF says Basel III will have cost consequences on the economy

14 September 2010

The European Banking Federation considers the new capital requirements of Basel III very demanding, even though they believe European Banks will meet the new thresholds for capital. They believe it will negatively impact the volume and cost of Bank lending

Guido Ravoet , Secretary General of the European Banking Federation ( EBF) stressed that in Europe, 75% of the lending to the private sector is carried out by banks, against only 25% in the US and as such is concerned about the lack of a thorough cumulative impact assessment before the adoption of all the regulatory measures proposed as part of the global financial reform.

They consider the common equity requirements as onerous as they have actually been more than doubled, with the overall common equity requirements, with buffer, having been pushed to 7%, from 2% under Basel II. With , the types of capital instruments which will be allowed to meet the minimum thresholds severely restricted, they believe European banks will require several hundred billion Euro to meet the new requirements.

The Secretary General also rejects the proposal for extra demands for Systematically Important Financial Institutions (SIFIs)  as well as the counter-cyclical buffer,which could have damaging consequences on the economy and rather stressing that what the SIFIs need is better supervision and crisis resolution mechanisms  which include more cooperation between supervisors.

The EBF also belives that the issue of non risk based leverage ratio should remain a measure of discussion between banks and their supervisors and be part of the supervisory process.

Finally, in the interest of mainaining a level playing field in the highly competitive global market, the EBF suggests that the Basel measures  be mplemented similarly accross all jurisdictions.

© EBF