BASEL: The European Union’s (EU) top financial services official has downplayed the prospect of completely axing a contentious bank capital rule slated for review, hinting instead at more temporary changes to address the immediate needs of Europe’s economy.
One of the biggest surprises from the European Commission’s grand plan for tackling banking competitiveness was a commitment to advance “clear proposals” to reform the “output floor”, a new global rule introduced so banks couldn’t game their models to cut capital charges.
The United States announced in March that it will not implement the output floor when it finally adopts the rules agreed in Basel almost a decade ago, while the EU had promised to introduce it on a phased basis despite protests from its banks.
In an interview after unveiling last Friday’s report, financial services commissioner Maria Luis Albuquerque said the output floor is particularly onerous for European lenders because so many of the region’s businesses don’t have credit ratings and rely on bank financing.
Europe is trying to “incentivise” companies to reduce their dependence on bank lending, Albuquerque said.
The work on the output floor will seek to “balance the short-term needs” of Europe’s economy, which are hurt by the output floor, “with a more strategic perspective” toward reducing bank funding.
The European Central Bank’s supervisory arm, which oversees eurozone lenders, supports the output floor and Albuquerque said officials would “need to have a proper dialogue with them” on the topic, as well as with those at the Basel Committee on Banking Supervision that set the rules.
“It’s not Europe is doing something and everybody else is faithfully implementing Basel,” Albuquerque said on whether tweaking the rules could compromise Europe’s standing globally. — Bloomberg
