Approval of new Basel rules postponed after disagreement over capital

Wednesday, 4 January 2017 00:00 - - {{hitsCtrl.values.hits}}

FRANKFURT (Reuters): Global banking regulators on Tuesday postponed the approval of long-awaited rules designed to avert a repeat of the financial crisis, after failing to agree on the minimum amount of capital banks must hold.

Central bank governors and heads of supervision from nearly 30 countries were due to meet on Jan. 8 to approve the new rules that will determine how much capital lenders have to set aside against loans and other assets.

The Basel III reform has proven divisive, with European regulators worrying that higher capital demands would curb bank lending - the prime source of funding for companies in the region.

The Basel Committee working on the reform said on Tuesday more work was needed before its proposals could be submitted for approval by its oversight body, the Group of Central Bank Governors and Heads of Supervision (GHOS).

Sources close to the matter told Reuters the main sticking point relates to a “floor” on how much capital a bank needs to hold irrespective of what its own model says.

“More time is needed to finalise some work, including ensuring the framework’s final calibration,” the Basel Committee said.

“A meeting of the GHOS, originally planned for early January, has therefore been postponed. The Committee is expected to complete this work in the near future.”

It is due to meet again on March 1-2.

The capital floor rule is bound to have a major impact on large banks such as Germany’s Deutsche that use their own, rather than standard, computer models to determine their required capital buffers.

Disagreements on this and other matters meant the Committee failed to strike a deal in Chile in November, missing its end-2016 deadline.

Sources told Reuters last month the floor rule had been softened to win over the Europeans.

Specifically, the sources said Basel members had agreed on a lengthy phase-in whereby the capital floor would start in 2020 at 55% of the amount that would be required if a bank had used the standard approach set out by regulators for totting up risks.

It would then rise by 5%age points to a maximum of 75% by 2025. Basel had originally proposed a floor which would rise as high as 90%.