During meetings in Lulea, Sweden, on 14 and 15 June, financial regulator authorities meeting within the Basel Committee were unable to reach agreement on a compromise aimed at finalising international rules on strengthening capital requirements (Basel III).
The Basel Committee is still grappling with revision of “output floor” capital requirements. The draft compromise on the table gives a threshold of between 70 and 75%, calculated on an aggregated basis for all risks, and gradually set in place between 2021 and 2025.
According to information available, Europeans have approved their positions, calling for a 70% threshold with different flanking measures, such as shorter transition periods. Such measures were reportedly welcomed by several parties to the talks, such as Japan, but the United States remains intransigent about fixing a 75% threshold.
The European banking industry had expressed its fears at the beginning of the week, taking the view that such a threshold would limit banking finance potential (see EUROPE 11806).
Furthermore, the proposed change to the American financial regulation framework, published on Monday 12 June by the Trump administration, does nothing to reassure Europeans. The document is said to speak of possibly bringing into question two rules finalised within the Basel III framework: fundamental review of the trading book (FRTB) and the net stable funding ratio (NSFR). In a document published on 13 June, the French banking federation (FBF) considers that this “leaves a doubt hanging over the will of the United States to apply the new agreement”.
The FBF states that “no deal” would be better than a “bad deal”. The same spirit seems to prevail in the European Commission. “We want to reach an agreement that works for everyone”, a Commission spokesman told us on Friday 16 June, going on to say: “We expect the Basel Committee to honour the international commitments of not significantly increasing the capital requirements”.
Discussions will continue in coming weeks and the subject may be tackled at the G20 meeting on 7 and 8 July, under German presidency. (Original version in French by Marion Fontana)