Basel postpones meeting to finalise bank capital rules

The Basel Committee on Banking Supervision (BCBS) has postponed a meeting originally scheduled for this Sunday, where senior figures were due to agree the framework for banks’ risk-weighted capital ratios.

The BCBS, international standard setter for the banking industry, said this week that it would put back to the key meeting of central bank governors and heads of supervision (GHOS) as further work needed to be completed before a decision was made.

Reports suggest that a further two months could now elapse while further debate takes place over the new rules, which European banks claim would unfairly penalise them and has sparked a lobbying battle with their US peers.

Completion of the Basel III capital adequacy regime has been held up by a clash between bankers and regulators over how lenders calculate the riskiness of assets and the amount of capital they are required to hold. Many European banks use “internal models,” which US regulators argue have allowed them to underestimate capital needs.

In response, European banks claim that reducing their ability to use their own risk models would force them to raise more capital, which would contravene an international commitment that bank capital requirements wouldn’t increase significantly. They also claim that in their current form the proposed new standards could affect their ability to extend credit into the economy.

Michael Lever, head of prudential regulation at the Association for Financial Markets in Europe (AFME), which represents the biggest banks and other wholesale markets participants, told the Financial Times that he welcomed the decision to undertake further work on the proposals.

“It is important to take the time to create a framework that is capable of accurately measuring the risks that banks are assuming and can also accommodate structural differences between banking markets in different jurisdictions,” he said.

“It is important to take the time to create a framework that is capable of accurately measuring the risks that banks are assuming and can also accommodate structural differences between banking markets in different jurisdictions,” he said.

Mario Draghi, president of the European Central Bank (ECB), who also chairs the supervisory board of the Basel committee, insisted: “Completing Basel III is an important step towards restoring confidence in banks’ risk-weighted capital ratios, and we remain committed to that goal.”

The delay will, however, disappoint the BCBS, which aimed to have the reform package signed off by the end of 2016. New uncertainties have been raised by the election of Donald Trump as US president and the future direction of financial regulation. Trump has said that his administration will roll back some areas of the rules introduced since the 2008 financial crisis.

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