The EU has been warned not to delay the next phase of global banking rules, as draft plans show that Brussels is suggesting giving European banks a two-year extension to an internationally agreed deadline.
Carolyn Rogers, secretary-general of the Basel Committee for Banking Supervision, said the new rules were “a really important final chapter” in the overhaul of capital regulations known as Basel III. They had to be implemented “consistently and as soon as possible”, she told the Financial Times.
The European Commission is set to reveal its plan to implement the final part of the Basel reform package on Wednesday. The reforms are due to come into force by 2023 under a global accord, but the commission is proposing a delay until 2025, according to a draft of the plans seen by the FT.
Brussels’ proposal also includes phasing in some measures, such as for lower risk mortgages, so that they will not be fully in force until 2032.
The measures to be implemented will set new standards for how international banks should measure their capital, to create consistency across national borders. They are the final part of a package of measures to try to make banks more resilient following the 2008 global financial crisis.
A delay would be welcomed by banks in countries such as France, which would have been hit hardest by having to hold more capital to comply with the latest rules, but will risk a clash with global regulators.
Rogers, whose organisation sets global banking standards, warned that a delay by the EU could prompt other jurisdictions to hold back on implementation so as not to put their banks at a disadvantage.
The globally-agreed timeline, which was already extended by a year to deal with the fallout from the pandemic, “absolutely matters”, she said.
“This is always the challenge, when jurisdictions want to deviate from a global standard,” said Rogers, who will join the Bank of Canada as a senior deputy governor in December. “When you know that [the standards] are there to create a level playing field, a single deviation is hard to keep as a single deviation.”
An EU delay is also likely to frustrate European regulators. “We consider it of paramount importance that the outstanding Basel III standards are implemented in full, and in a timely and faithful manner,” Andrea Enria, chair of supervision at the European Central Bank, told members of the European parliament this month.
The plans would still need to be agreed by the parliament and EU ministers before coming into force.
According to the draft commission proposals, the European Banking Authority, which creates the EU’s banking rules, has estimated that ten large banks would have to raise their capital by under €27bn to meet the new requirements under its preferred option.
The other 89 banks in the EBA’s sample had no shortfall. The 99 banks have €1.44tn of regulatory capital.
Enria told MEPs that ECB analysis had shown that “the short-term transitory costs pale in comparison with the long-term benefits of strengthening the resilience of the financial system”.
Regulators in Basel are watching the European package to see whether it sticks to an agreement to establish a “floor” for the capital that banks need to set aside against certain types of assets. This would restrict banks’ ability to use their own internal models to arrive at lower capital requirements.
The commission did not comment directly on the timetable for implementation. However it said the bloc’s proposals “will meet our international commitments to implement the Basel III standards, but adjustments to those will be made to reflect the specificities of the EU economy and banking sector.”
The draft proposal also tightens regulations for branches of non-EU banks doing business in the region, including mandating reviews of networks of branches with more than €30bn in assets to see if those businesses should have to operate as subsidiaries — a measure that would force them to hold more capital and liquidity.