Brussels, 03/05/2010 (Agence Europe) - Andreas Treichl, the director of Austrian bank Erste Bank, said at a public hearing organised by the European Parliament's economic and monetary affairs committee on the increased capital requirements for banks on Monday 3 May that he feared decision-makers were unaware of the damage their reforms would do to the real economy. He said that the current rules did not differentiate among different types of bank and did not fit retail banks. Unlike buildings societies, investment banks will be helped by the new Basel III rules, he said. Speaking on behalf of Spanish banking giant Santander, Barbara Frohn called for a macroeconomic assessment, rather than a case-by-case assessment, of the impact of the capital requirements changes on the real economy.
Stefan Walter, the secretary general of the Basel Committee (of major banking regulators and central bankers from around the world, a committee responsible for making recommendations on bank regulations), said that after causing the crisis, banks had now returned to pre-crisis levels of profitability thanks to massive bailouts and injections of public sector cash. He said that the banks must now set up their own safety nets ahead of any further crisis rather than be bailed out by taxpayers and using that money to pay bonuses or get greater leverage, he said. The increased capital requirements for banks will aim to reduce leverage ratios, improve the quality of bank capital, force banks to set aside enough cash and improve risk management. Aware that the worst crises were those where banks are unable to lend on to the real economy, Walter said that the Basel Committee, in cooperation with the IMF and the BIS, would make an in-depth assessment of the impact of the current reforms on individual banks and on banking as a whole, to ensure that the transition to the new rules does not undermine growth.
Dynamic provisioning. Frohn described dynamic provisioning, a mechanism that has been shown to work by Spain, as being like a squirrel, setting aside stores to prepare for the winter, making provision in fat years to prepare for the lean (see EUROPE 9949). She said there was confusion about the reasoning behind such a measure (preparing for future crises or providing greater funds to be lent on to customers), which should be added by the European Commission to its draft Basel IV Directive, expected to be published at the end of the year. She said that Santander did not want a “dual system”. (M.B./transl.fl)