EU Set to Water Down Plan for New Bank Capital Standards

Jorge Valero and Nicholas Comfort
·2 min read

(Bloomberg) -- European Union countries are close to agreeing on a watered-down version of new capital rules for banks after the industry warned that a strict approach would risk choking off the supply of credit to the bloc’s economies.

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The most recent draft proposal for implementing Basel III includes several changes to an earlier version from the EU’s executive arm and could be approved Tuesday by finance ministers meeting in Brussels, according to people familiar with the matter.

Banks would dodge an increase in the perceived riskiness of several types of equity exposures, fewer subordinated debt holdings would be moved to a higher risk-weighting and there would be more flexibility for property loans, according to comparison of the earlier proposal with the latest document seen by Bloomberg.

Global regulators spent a decade after the financial crisis coming up with new rules to force banks to boost their capital reserves to avoid a repeat of the 2008 credit crunch and the ensuing bailouts by taxpayers. Yet Europe, where companies rely more on banks for funding than bond or stock markets, has been reluctant to fully implement the standards its regulators agreed to in Basel.

The latest EU plan cites the “utmost importance” of implementing outstanding pieces of regulation, but it also states the need to avoid a “significant increase in overall capital requirements” for Europe’s banking system and take account of “specificities of the EU economy.”

Officials from the European Central Bank and European Banking Authority said last week that they’re “very concerned” that the legislative process for implementing Basel III in the EU has seen pressure to deviate from the standards initially agreed in 2017. The European Commission’s proposal last year already included departures from the original standards, they said.

--With assistance from Sonia Sirletti.

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