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EBF raises concerns over Basel rules

Monday 13 September 2010 - by Andrew Hickley

New Basel rules have been met with mixed reactions from the industry after it emerged that capital requirements will be hiked by more than three times their current level.

At its meeting on 12 September, the oversight body of the Basel Committee on Banking Supervision agreed to strengthen existing capital requirements.

The new regulations will force banks to treble their capital levels, with tier one capital set to be increased from 2 per cent to 4.5 per cent in 2015, while a further 2.5 per cent conservation buffer will be established in 2019, meaning common equity rises to 7 per cent.

Guido Ravoet, Secretary General of the European Banking Federation, has stated that the EBF believes that the nature of Europe’s lending system will lead to an increase in costs.

“European banks will meet the new requirements, but it will have consequences on the volume and cost of lending and therefore a cost on our economy too. In Europe, 75% of the lending is carried out by banks, against only 25% in the US [where similar capital requirements have been raised in the Dodd-Frank Bill].”


The EBF is also critical of the restrictions placed on defining minimum capital thresholds, which could require “several hundred billion Euro to be able to meet the new requirements”. It also questions the lack of a “thorough cumulative impact assessment before the adoption of all the regulatory measures proposed”

“In a global competitive market, it is imperative that these requirements are implemented similarly across jurisdictions, if a level playing field is to be ensured,” states Ravoet.

The British Bankers’ Association claimed the regulation will bring positive changes, but agreed that a fundamental change in banking will now be underway.

Angela Knight, chief executive of the BBA, said “Once the new rules and requirements are in, this may well improve stability of banks and of the financial system. The transition though is the critical bit, as the rules suck money out of the economy. Even though UK banks are in a much stronger place than most on capital, the Basel changes need to be implemented over a long timetable and very carefully sequenced to avoid prolonging the downturn.

“The liquidity requirements are also significant, as these feed through to the price and the availability of lending. All the changes are good from a stability perspective, but add billions to the fixed operating cost of a bank. The consequence is that inevitably the cost of credit will rise. The cheap money era is over.”


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