The EU does not want to implement the stricter banking capital rules (Basel III) until 2025, with a two-year delay. The Vice President of the EU Commission, Valdis Dombrovskis, spoke of a realistic time frame on Wednesday. The legislative proposal of the EU Commission is based on the recommendations of the Basel Committee on Banking Supervision. In 2017, the committee with experts from 28 countries decided on a package of reforms for the international banking sector, which was supposed to incorporate experience from the global financial crisis. “Overall, the result is good. There is no weakening,” said Bundesbank board member Joachim Wuermeling. Experts had recently warned against a weakening and a delay in implementation. It is of the utmost importance that the Basel III rules “are implemented in full and on time,” warned the head of the ECB banking supervision, Andrea Enria. The deadlines are now not being met.
That is a success of the lobbying work of the banks. The industry was therefore also satisfied. “The legislature was accommodating to the banking industry,” said Deutsche Bank CFO James von Moltke on Wednesday. “The proposals of the European Commission for the implementation of the new Basel rules show the right way,” said Christian Ossig, General Manager of the Association of German Banks.
The stricter rules relate to depositing loss buffers with banks. Big banks like Deutsche Bank have a lot of freedom when it comes to calculating the risk of default on their loans. They use their own models for this. Smaller institutions have to use standard models that are specified by the supervisory authorities. The freedom for big banks is to be curtailed. That happens through the so-called Output floor, which should amount to 72.5 percent. An example: A major bank grants a large number of loans and checks the risk of default. If the standard approach of the supervisory authority envisages 1000 euros as a capital buffer, then a major bank will have to set aside at least 725 euros in future – even if its own model has calculated a lower capital buffer. This output floor has long been controversial. Bundesbank board member Wuermeling said the credit supply in Germany was not affected by the rule. Incidentally, the output floor should not apply in full until 2032 – four years later than planned.