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Finalisation of Basel III: Majority of MEPs bend to pressure from financial industry and reject tougher rules for banks


Today, the European Parliament has voted a resolution and an oral question on proposals for refining the prudential framework for banks (i.e. the finalisation of Basel III, the so-called ‘Basel IV’). The proposals put forward by the Basel Committee on Banking Supervision (BCBS) inter alia intend to limit the use of bank-internal models for credit risk calculations and to increase capital requirements for market and operational risks. However, today, the European Parliament has adopted a resolution, which refuses any future overall capital increase for banks. On the contrary, it expresses concerns that higher capital requirements may endanger credit supply and the competitiveness of European financial institutions. The resolution was carried by a large majority of conservatives, social democrats, liberals and eurosceptics. The Greens and the Left group voted against. The vote in the European Parliament took place only one day after the European Commission had adopted its proposals for the revision of European banking regulation (CRR, CRD IV, BRRD and SRMR).

 

MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group commented:

This resolution makes clear that the post-crisis mood for tough financial regulation has changed. The financial industry has successfully lodged the idea of over-regulation in the minds of politicians. This is bad news, as the financial system continues to be overly complex and some big banks are still thinly capitalised. The problems of shadow banks and too big to fail have still not been tackled seriously. Therefore, it is appropriate to further increase capital requirements for the weakest and riskiest market players.

It is admissible to criticize the Basel Committee on Banking Supervision for its lack of democratic control and to scrutinize the positions taken by the EU Commission, the ECB and the European Banking Authority. Likewise, it is legitimate that Europe insists that its banking model is not unfairly hit by internationally developed Basel rules. However, it is a severe mistake to side with the banking lobby that capital requirements are sufficient and should not be increased further. On the contrary, systemically important banks with leverage ratios as low as 3% pose a severe threat to Europe’s financial stability and its taxpayers.

The only part which rightly merits the label “over-regulated” is the excessive regulatory reporting requirements and the over-complicated risk calculation approaches which have resulted in a hugely disproportionate administrative burden for many smaller banks with simple business models. Therefore, we are pleased that our suggestion for a “small banking box” could be maintained in the resolution. A one size fits all approach with complex rules in banking regulation and supervision hits small institutions disproportionately and will weaken fair competition further bolstering the dominance of a handful of bloated incumbents. In the upcoming CRR/CRD IV review we will fight for significant simplifications for small banks while insisting on strict rules for systemically important banks.”

 

The draft text of the European Parliament’s resolution can be found here:

http://www.sven-giegold.de/wp-content/uploads/2016/11/DRAFT-ECON-MfR-on-Finalisation-of-Basel-III_20161024.docx

The amendments by the members of ECON, which demonstrate the different views, can be found here:

http://www.sven-giegold.de/wp-content/uploads/2016/11/1108261EN.docx

The text voted in plenary can be found here:

http://www.sven-giegold.de/wp-content/uploads/2016/11/Basel-III-resolution.docx

The speech of William Coen, Secretary General of the Basel Committee, at the ECON Committee meeting on 12 October 2016 can be found here:

http://www.bis.org/speeches/sp161012.htm

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