New Basel banking rules stumble, but markets implement
(PARIS) - Global banking reforms known as Basel III are stumbling in Europe and the United States, but the rules have been published by major Asian financial powers and are already being enforced more broadly by financial markets.
The new regulations, drawn up in the wake of the 2007 financial crisis and unveiled in late 2010 by the Basel Committee on Banking Supervision, are designed to make banks stronger by requiring bigger cash reserves backed by more higher quality capital.
They are supposed to be phased in gradually from 2013 to 2018, but on Friday the US Treasury said it would not implement new rules on January 1 because US banks were not ready to meet the tougher standards.
In Europe, talks have gotten bogged down as well, though Cypriot Finance Minister Vassos Shiarly said Tuesday that he hopes to be able to announce an agreement on the issue at the next meeting of European Union finance ministers on December 4.
Cyprus currently holds the rotating EU presidency.
By last month, only eight of 27 countries following the Basel process had published final rules, including China, Japan, India and Switzerland.
In the United States, the Treasury said that US regulators who are members of the Basel Committee "take seriously our internationally agreed timing commitments regarding the implementation of Basel III" but did not say when the new rules might be approved.
US banks have argued that the changes will put them at a disadvantage to global competitors, especially from Europe.
"Many industry participants have expressed concern that they may be subject to a final regulatory capital rule on January 1 2013, without sufficient time to understand the rule or to make necessary systems changes," the US Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency said in a joint statement.
"In light of the volume of comments received and the wide range of views expressed during the comment period, the agencies do not expect that any of the proposed rules would become effective on January 1, 2013," the agencies said.
One bone of contention is how much latitude each country would be allowed to set a minimum level of core capital required of their banks.
One option would "annul the principle of standard rules, which seems crucial to us," the European Banking Federation said.
The financial services director of the Sia consulting group, Thomas Rocafull, said that one reason for the delay could be the difficult economic climate at present.
"It is all well and good to reinforce standards and limit risks, but doing so at the bottom of the economic cycle, in a weak period penalises us twice," and could undermine the volume of credit available to the broader economy, he noted.
Meanwhile, an analyst who asked to remain anonymous, dismissed the entire issue as "a total non-event."
Financial markets have already accepted the need for stronger bank capital ratios and have essentially forced banks that want to remain credible to adhere to them, the analyst said.
Since late 2011, major global banks have aimed for core Tier 1 capital ratios, a common measure of a bank's financial strength, of 9.0 percent, the future norm, and virtually all are expected to have reached that level by 2013.
To do so, banks have cut back on lending, downsized investment banking operations and searched for more deposits.
"A company looking for financing today that cannot also offer some deposits is less attractive than one which can," Rocafull said.
An example is that of French municipalities which face long-term financing needs but have been shunned by banks because their revenues are collected by the French Treasury.
On Thursday, French bankers blamed the delays on US counterparts, with the head of BNP Paribas, Baudouin Prot, telling a forum organised by the French financial markets watchdog AMF that Basel III had become simply "a European phenomenon."
Prot added that Michel Barnier, the European commissioner for the internal market and services, "said he would not apply Basel III as long as the Americans did not.
"I would like to know what Mr. Barnier is going to do" now, Prot remarked.
- Dow Jones Newswires contributed to this story -
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