In a letter to the European Commissioner for Financial Services, Valdis Dombrovskis, dated Monday 28 August, the European Banking Federation (EBF) argues for two measures of the Financial risk reduction package to be frozen until the international rules on reinforcing banks' capital requirements (Basel III) are finalised (see EUROPE 11810).
The two measures flagged up in the letter, of which EUROPE has had sight, are the new standards for assessing the market risk of the trading book (FRTB) and the net stable funding ratio (NSFR). Both are born of the so-called 'Basel III' reform, they must be transposed into European legislation.
The Commission's proposal provides for the market risk requirements to be revised to introduce more risk-sensitive approaches (see EUROPE 11674). Although the EBF theoretically supports such a revision, it believes this new framework must be “reliable, stable and compatible with the objectives of the Capital Markets Union”, and that it is therefore too soon to carry out this revision, whilst the Basel III agreements have not been finalised.
The banking industry also stresses that several jurisdictions, such as the USA, have stated that they will not implement these new requirements or have called for their application to be postponed until they are properly calibrated. With regard to this, the EBF considers it vital for European banks and the continent's economy to have the “reassurance that this framework will be applied in all jurisdictions at the same time”.
The EBF also calls upon the Commission to reconsider the binding NSFR ratio, which aims to ensure that European banks have enough cash to finance long-term loans for one year. The organisation is concerned about its economic impact on the capital markets and on interbank financing and the additional costs that this ratio could cause for bank customers.
“Given the current perfunctory commitment by other jurisdictions and the lack of an internationally agreed methodology for these two reforms, there is a significant risk that European banks, and the economy they support, will base an uneven playing field vis-a-vis its international competition”, the document concludes. (Original version in French by Marion Fontana)