Paris and Berlin look to dilute EU’s strict bank capital rules
France and Germany are attempting to dilute the EU’s long-awaited change to banking regulation.
The European Commission is expected to introduce a new capital minimum, which would make it harder for banks to use their own internal calculations to decide the size of their capital base, in the autumn.
Paris, Berlin, Copenhagen and Luxembourg are reportedly trying to persuade the commission to moderate the minimum level imposed, the Financial Times has reported. They have argued the way in which it has been drawn up threatens to penalise EU banks.
The standards could force banks to raise the amount of capital they hold by more than ten per cent. The four states are reportedly arguing for a so-called “parallel stack” approach that would help prevent a significant uplift in capital requirements by subjecting two version of a bank’s balance sheet to different rules.
The alternative “single stack” approach has been championed by the Netherlands and by the EBA, which predicts the plans would increase capital requirements by 18.5 per cnet.
In 2019 the EBA warned that the parallel stack approach was not compliant with the Basel agreement.
Jörg Kukies, deputy finance minister of Germany, told the FT hat the Franco-German proposal was “a pragmatic way of ensuring a truthful and compliant Basel implementation on the one hand and respecting the political mandate of [the EU’s economic and financial affairs council] and G20 for no significant increase in capital requirements as well”.
A French official said Paris wanted to “strictly apply the Basel agreement” on the output floor, no more and no less. “It is about finding a way of doing it in Europe that avoids gold-plating and over-transposition,” the official argued. “All in all, any two-digit [per cent] increase in capital requirements would for us be too significant as it goes against the commitment made to the G20.”