Governments are facing a growing backlash from European banks against plans to increase the capital that they must hold to protect themselves against risk.
The banks argue that the European Commission and others have failed properly to assess the “cumulative” impact of planned reforms to capital requirements, which could force banks to reduce lending.
Deutsche Bank last week strongly criticised draft legislation proposed by the Commission last July to increase the capital requirements imposed on banks’ trading books. The draft legislation would also raise the capital threshold for banks that engage in complex resecuritisiations, and would allow regulators to place capital sanctions on banks that are deemed to have irresponsible remuneration policies.
Andreas Gottschling, Deutsche Bank’s head of risk management, said that the proposal was “not very well designed due to political time pressure” and that it could have a “massive” impact on credit flow.
He said that “more than half of what is in there” had not been subject to a proper impact assessment before being proposed by the Commission, and that it may be approved by the Council of Ministers and the European Parliament before its full impact is known.
Finance ministers reached a deal on the legislation in November. Arlene McCarthy, the Parliament’s lead MEP on the dossier, expects to present her draft report on the proposals this month.
Peter Levene, chairman of Lloyd’s of London, warned more generally last week that regulators should not be heavy-handed. “We need good regulation, better regulation but not more regulation,” he said.
The EU’s agenda for reforming capital requirements is being driven by the Basel Committee on Banking Supervision, an international body that brings together supervisors and central bank governors. The Commission’s proposals on the trading book and complex resecuritisation are derived from a package of reforms agreed at Basel in July 2009. The Basel committee is currently working on an impact analysis of the package, with preliminary results expected by July this year.
A second package of reforms was provisionally agreed at Basel in December. These changes, which include placing a capital requirement on liquidity risk and creating counter-cyclical capital buffers, are expected to be adopted definitively by the end of this year. The Commission will, in parallel, prepare proposals to implement the reforms in the EU.
“We have a major concern about the impact of all the measures together,” Guido Ravoet, secretary-general of the European Banking Federation, said. “Measurements are lacking,” he added.
Alistair Darling, the UK’s finance minister, said last week that he feared the Basel timetable could slip, saying this would be “very, very bad”. “The process is presently going through the Basel committee at a rate that I believe is far too slow,” he said.