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Barnier hits back at Basel III criticism

28 May.

Barnier and Basel III.

Michel Barnier, the EU internal market commissioner, Europe’s top financial services policymaker lashed out on Friday at criticism of the way Brussels was implementing new rules designed to improve the safety of the European Union’s banking system.

“Europe will implement Basel III,” he insisted. “We have said it before and I confirm it to you today, the European Commission’s proposals to implement Basel III will respect the balance and level of ambition included in Basel III”.

Basel III are the new guidelines agreed globally last year, toughening up the amount of capital that banks must hold in an effort to make the sector more robust following the 2008 financial crisis. They will be implemented in Europe through legislation being drawn up by the European Commission that is likely to be unveiled in early-July.

Allegations that some signatories to the Basel III agreement might be looking to water it down could have particular resonance because of the lasting bitterness over the Basel II rules. The US, after helping drive those risk-based standards through the Basel process, failed to implement them for its own banks for many years.

But Mr Barnier’s frustration also appeared to reflect the fact that Brussels is coming under attack from all sides – even before its proposals are published. In a formal statement, the commissioner noted that Brussels had recently been under fire from people “accusing us of damaging the economic recovery by implementing rules which would be too tough for banks because they would impede their lending to the real economy”.

He continued: “Today, others seem to accuse us of the opposite – with suggestions Europe would not be implementing Basel properly, thus not learning all the lessons of the crisis.

“Both criticisms are unjustified. They will not affect my determination. I will not be swayed by various pressures.”

Mr Barnier’s comments were triggered by a Financial Times story (also a video) based on an unpublished draft of the impending EU legislation, which indicated that there would be more flexibility for banks with insurance subsidiaries than proposed under the Basel III guidelines. The same draft also made clear that banks would be able to count hybrid capital up to the point at which Brussels formally adopts the draft legislation in July – rather than the September 2010 Basel III agreement date.

EU officials defended their plans on both scores, saying that it was not “legally feasible” to have legislation that implemented rules retrospectively. On the insurance front, they also said that it was “only normal” to have specific rules to regulate cross-sector financial groups, and insisted that tight technical standards and robust policing would avoid any loopholes.

But news of the likely approach drove bank share prices higher in London, with a number of lenders among the top 10 European risers. Banks with large insurance arms, which would benefit disproportionately from moves to allow institutions to count more of the capital held in these businesses towards the Basel requirements, were among the best performers.

Shares in Credit Agricole, France’s third-largest bank, rose almost 4 per cent. Those in Lloyds Banking Group increased 3 per cent, marking the state-backed lender’s strongest performance in seven weeks.

The apparent loophole for insurance subsidiaries carries particular weight because a 10 per cent limit on the use of such capital was part of a very detailed compromise that cleared the way for the Basel III accord last September.

Several countries agreed to impose similar-sized caps on various kinds of capital that the full committee wanted to eliminate but their banks were most reliant on. The US banks, for example, are limited in their use of mortgage servicing rights, while the French were supposed to reduce their use of insurance subsidiary capital.

If that compromise breaks down, some regulators fear further unravelling could occur.

Source: Financial Times

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