Banks' Worst Fears Eased as Basel Soft-Pedals Capital Overhaul

by Edward O'Brien 0

Global banking regulators pledged to refrain from further tightening capital requirements with new rules to be finalized in 2016, dispelling industry fears that triggered intense lobbying efforts over the past year.

The Basel Committee on Banking Supervision doesn’t plan to raise capital requirements across the board in the remaining projects of its post-crisis bank rule overhaul, it said Jan. 11 after a meeting of its oversight body, chaired by European Central Bank President Mario Draghi. The group, which includes the Bank of England and U.S. Federal Reserve, said it will assess the potential costs of any additional action.

“The committee will conduct a quantitative impact assessment during the year,” the group said in a statement. “As a result of this assessment, the committee will focus on not significantly increasing overall capital requirements.”

Basel’s slate of rules for this year, including a review of trading risks that the committee endorsed on Jan. 10, have faced heavy criticism from bankers, who say onerous new capital charges would crimp their ability to lend. The overhaul of how banks value risky assets has led industry executives to warn a regulatory onslaught — sometimes referred to as Basel IV — is still ahead, even after the last decade of new rules designed to prevent another market meltdown.

The Basel Committee’s recent guidance suggests an opportunity for financial institutions to reinvest capital earmarked for expected stricter capital requirements. This should allow financial institutions the ability to expand their loan portfolios and invest more capital for process and systems improvements, including core and channels systems upgrades.

Overview by Ed O’Brian, Director, Banking Channels Advisory Service at Mercator Advisory Group

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