Does It Matter If Europe Blows Up Basel Accords?
By John Heltman
WASHINGTON — As the financial world comes to grips with the news that the European Union has no intention of implementing the final elements of Basel III, observers are scrambling to figure out how much impact the split could have on U.S. banks and global financial stability. European Commission Vice President Vladis Dombrovskis told a banking conference in Brussels last week that the EU was planning to go its own way on credit, operational and market risk capital requirements — the final handful of capital rules in the Basel III accords that remain unfinished. Such a public split would undoubtedly be a major blow to global banking rules and capitalization standards, but some believe his comments are a bluff designed to tone down the final Basel III agreement…. Karen Shaw Petrou, managing partner of Federal Financial Analytics, said the EU announcement at the very least puts the U.S. in an awkward position of having to choose between higher standards and poor global competitiveness for domestic institutions on the one hand and backing off of its regulatory vision on the other. “They have to cross their fingers and click their heels twice and hope that Basel can be functional, because if it isn’t, they face some very hard choices that they would prefer to avoid,” Petrou said.