On Friday 27 January, the European finance ministers took stock of the international negotiations to tighten up bank capital requirements (finalisation of the Basel III rules) taking place at the Basel Committee, against the backdrop of uncertainty over the position of the American administration of Donald Trump.
After the Ecofin Council, the Commissioner for the euro and Financial Services, Valdis Dombrovskis, said that there were no concrete indications from the new American administration as yet. He said that the main stumbling blocks concern the revision of the minimum own funds requirements ('output floor'). He reiterated the request of the Europeans for the finalisation of the Basel III rules not to lead to a substantial increase of capital requirements for European banks (see EUROPE 11643).
There will be some waiting time for obvious reasons, but the discussions have not stalled and this is why we have asked the Council to keep us informed, said the Maltese finance minister, Edward Scicluna.
In general, the Europeans and Americans differ over the nature of the approach to be used to calculate bank capital requirements. The Europeans are in favour of using the banks' internal models, which they believe to be more appropriate to the nature of risks run by each institution. The Americans are calling for the use of standard models to be applied to the whole of the banking sector.
At the debate at the Ecofin Council, the Vice-President of the ECB, Victor Constancio, talked of a hybrid solution bringing in certain restrictions on the use of certain internal models. Spain, which wants as much transparency as possible, said the new Trump administration would not necessarily be more sensitive to the European positions than the previous American administration. Several countries reiterated the importance for the Europeans to sing from the same hymn sheet.
The question of the 'output floors' is of great concern to the European industry. "If the level is set too high, this would hurt banks holding a lot of mortgage loans, for instance in Denmark", stressed a source from the banking sector, who still anticipates that the Trump administration's stance will change substantially. Despite a postponement of a negotiation session in early January, an international agreement could be reached in March, possibly on the side-lines of the meeting of the 'G20 Finance' meeting (17-18 March). (Original version in French by Mathieu Bion)