Renegade EU’s Bank-Capital Pushback Threatens to Erode Basel
By Alexander Weber & Boris Groendahl
The European Union has threatened to go rogue in talks on bank capital rules, and the bloc’s willingness to go its own way could undermine global standards intended to avert a new financial crisis. Top EU policy makers have made clear that sweeping changes are needed before the EU will accept a capital-rule revamp under way at the Basel Committee on Banking Supervision. The EU has a track record of doing its own thing: in 2014, the Basel Committee rebuked the bloc for failing to properly implement existing standards…. At the heart of the conflict are planned restrictions on how banks assess risk for regulatory purposes. The EU, home to nearly half of the world’s biggest banks, maintains the proposed changes would punish the bloc’s lenders and its economy…. The Basel Committee’s members,including the European Central Bank, the U.S. Federal Reserve and Japan’s Financial Services Agency, have argued about the merits of allowing banks to model risk since the tool was introduced in Basel II a decade ago. Europe and Japan support the internal-model approach, while the U.S. has said regulators should consider discarding it because it creates the potential for banks to game the rules. “The disarray in the global framework” reflects the “fact that Europe wants its banks to be de facto arms of the state,” while the U.S. and U.K. “want their banks to be de jure private companies that fail when they falter,” said Karen Shaw Petrou, managing partner of Washington-based research firm Federal Financial Analytics. “A meaningful global regulatory framework that goes beyond platitudes is simply impossible given this fundamental divide.”