EU eases bank capital rules as ECB warns of ‘breaking’ stability


LONDON, Nov 8 (Reuters) – European Union member states have backed a temporary easing and two-year postponement until 2025 for the final stage of the global Basel III rules on bank capital, despite the warning from the ECB, they risked “breaking the dike” that protects stability.

EU states will now negotiate a final deal with the European Parliament in early 2023, with further changes possible.

“One of our main goals was to avoid impacts on European banks that could reduce their ability to finance the European economy,” Czech Finance Minister Zbynek Stanjura told a meeting of ministers on Tuesday. of EU Finance.

Most of the Basel III rules, a set of tougher capital rules designed for banks after the global financial crisis more than a decade ago, have already been implemented.

“This once again shows our commitment to international standards and multilateral cooperation,” said Valdis Dombrovskis, executive vice-president of the European Commission, the EU’s executive body.

The finance ministers of Germany and France said the package had struck the “right balance”, with Spain adding that it reflected “idiosyncrasies” in the European banking sector.

“This flexibility gives banks enough time to adapt to these new rules,” said German Finance Minister Christian Lindner.

European banks have pushed for a temporary weakening of some of the remaining features of Basel III, arguing that they already hold enough capital and that higher requirements would limit lending to the economy.

EU ministers agreed to postpone the rollout of the final rules until January 2025 due to the economic fallout from COVID-19.

The revised rules would give relief until 2032 to largely offset capital increases by some banks holding low-risk mortgages, but would make it harder for investors to compare European banks with their counterparts elsewhere in the world, said analysts.

Based on a new ‘production floor’ for determining capital levels, EU states that host banks headquartered elsewhere in the bloc can insist that part of the group’s capital be held locally .

Smaller banks would benefit from simpler disclosure, and EU states have pushed back on attempts at stricter EU harmonization by ensuring senior bank staff are “fit and proper”.

Nuria Alvarez, analyst at Madrid-based brokerage Renta 4, said the long-reported delay was positive for banks, but was already priced into markets.

“In 2025, we should be in a more normalized macro environment and banks have time to adjust their balance sheets so that the impact of the measures is less onerous than if they were to be put in place in 2023,” he said. she adds.

S&P said last year that diluted standards would not materially affect credit ratings given that banks’ reserves already exceeded minimum standards, and could increase dividends and other payments.

Markus Ferber, a centre-right German member of the European Parliament, said EU states had taken a “pragmatic step in the right direction” to adapt global rules that are not suitable for European banks.

“FISSER THE DIKE”

EU states have also watered down Commission proposals to toughen requirements for foreign bank branches in the bloc, easing pressure on them to open subsidiaries with the extra capital and EU supervision. what it brings.

Luxembourg said the move guaranteed an “open economy” with more diversified sources of funding for EU economies.

The weakening comes despite warnings last week from the European Central Bank, which regulates major eurozone lenders, and the bloc’s banking watchdog EBA, which said the bloc could breach global rules.

The EBA said in September that EU banks collectively needed just an additional €1.2 billion to be fully compliant with Basel III by 2028.

But on Tuesday, ECB Vice-President Luis de Guindos told ministers he was concerned about deviations from Basel III at a time when the EU economy faces risks.

“Each deviation may only appear as an isolated crack in the levee protecting the banking system, but together these many cracks erode solidity and stability,” de Guindos said.

The Netherlands emphasized that temporary deviations should remain temporary.

The EU is ahead of Britain and the US in defining how it wants to implement the final stage of Basel III.

The Bank of England said it would also start implementing the rules from 2025, but would not match some of the relaxations approved in the EU.

The BoE is likely to watch Federal Reserve decisions closely given the strong presence of US investment banks in London.

Additional reporting by Jesus Aguado in Madrid Editing by Alex Richardson, David Goodman, Ed Osmond and Tomasz Janowski

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