German financial watchdog says Basel IV draft bank rules unacceptable for Germany

Wed Nov 2, 2016 5:50am EDT
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FRANKFURT (Reuters) - A new draft of proposed international bank regulation is unacceptable for Germany because the rules might restrict lending by the country's banks, the head of Germany's financial regulatory agency said.

The Basel Committee of bank supervisors from nearly 30 countries intends to deliver the new Basel IV rules by the end of this year. The rules aim to avoid repeats of the financial crisis of 2008-09, when taxpayers had to bail out under-capitalized lenders.

The plan, however, has drawn criticism in Europe. The European Union's financial services commissioner said several weeks ago that the reform risks hurting European banks and needs to be changed.

Felix Hufeld, the president of Germany's regulatory agency, Bafin, weighed in late on Tuesday.

"Discussions are not over the finish line yet," Hufeld said. "From a German perspective, what we have on the table so far is not acceptable."

Germany and France, especially, are worried that the proposals presented so far could discourage their banks from lending to consumers and companies. They say that the new rules demand a significant increase in the capital banks must hold against their risks.

One bone of contention is the level of discretion over how much capital banks must hold against loans turning sour.

Regulators want to cut complexity and inconsistency in capital requirements among big banks that use their own models, rather than methods set out by regulators, to calculate credit risks.

Models typically indicate lower capital requirements, a big advantage, since credit risk accounts for 70 percent of a bank's capital buffer. Regulators suspect that the big banks use models to make capital ratios appear stronger than they are.   Continued...

Felix Hufeld, President of Germany's Federal Financial Supervisory Authority BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) visits Thomson Reuters office in Frankfurt, Germany, September 22, 2016.  REUTERS/Ralph Orlowski