Brussels, 06/10/2010 (Agence Europe) - In Brussels on Thursday 7 October, the European Parliament adopted a report by its economic and monetary affairs committee on the future revision of bank solvency ratios (capital equipments) (see EUROPE 10216), backing the decisions made by the Basel Committee, known as the Basel III rules, to increase the quality and volume of bank and lending institutions' capital requirements by 2019 (see EUROPE 10123). The report sets out the committee's ideas of what high quality capital requirements are and how liquidity rules should be drawn up.
The only amendments to the draft report were tabled by its rapporteur, Othmar Karas (EPP, Austria). One of the amendments calls on the European Commission to set out the role of external ratings in assessing the quality of buffer liquidities and points out that any other criteria that might be decided upon must substitute for rather than supplement external ratings in order to ensure fair international competition.
The MEPs says that the introduction of a leverage ratio would be a simple and useful protection against the risk of incurring debt and excess risks, but they are concerned at the possibility that a gross leverage ratio alone would not sufficiently cover risk and would penalise bodies offering low-risk traditional banking services, like retailing, corporate finance and mortgage lending. The committee wants the leverage ratio to be part of the Basel Committee's first pillar, in other words to be part of the rules governing the calculation of bank capital. The rapporteur's amendment takes note of the Basel Committee's decision to respect an assessment period for application of the leverage ratio under the second pillar covering prudential capital surveillance by supervisors, with a view to incorporating the rule into the first pillar. The Commission is asked to add a revision clause to the draft directive it is expected to be unveiling later this year, to incorporate the Basel III rules in EU law.
Noting the importance of international coordination to prevent institutions shopping around for the most advantageous legal systems, the EP points out that the future reforms must not put EU banks in an unfavourable position. The MEPs argue that all parties involved in the Basel process and also the G20 must be fully committed to respecting a clear and coherent implementation timetable if the reform is to be a success. Europeans have had their fingers badly burned by the United States' foot-dragging for application of the Basel II rules. The MEPs add that all the financial reform measures, like increased capital requirements, bank charges and stronger savings guarantee systems, should be subject to an over-arching impact assessment in order to restrict their negative impact on funding of the real economy. (M.B./transl.fl)