LONDON, Oct 13 (Reuters) – Banking turmoil this year provides justification for fully implementing the “final mile” of Basel global banking capital rules, a global regulator said on Friday, despite an industry backlash in the United States.
The United States, European Union, Britain and other jurisdictions are deciding how they will implement the final package of tougher capital requirements for banks from the Basel Committee, rolled out since the 2008 global financial crisis when banks had to be bailed out by taxpayers.
The Federal Reserve is facing heavy lobbying from banks to water down its Basel “Endgame” plans. U.S. banks complain that the “Endgame” will significantly bump up their capital requirements.
“(There is)..heated debate in the U.S. now also heated debate in Europe, but all the arguments that justified back in 2017 the agreement on the last mile of the banking regulatory reform are still here with us,” Pablo Hernandez de Cos, chair of the Basel Committee, told the annual meeting of the Institute of International Finance.
One of the key reasons for the final package is the continued wide variability in how banks calculate capital buffers, he said.
The collapse of several U.S. banks in the spring and UBS being forced to take over Credit Suisse means there is an even bigger argument for full implementation, de Cos said.
“The impact this time is significantly much lower than the previous elements of the Basel III agreement,” de Cos said.
CREDIT SUISSE BOND WRITE-DOWN
Hundreds of bondholders have sued Swiss regulator FINMA which ordered a write-down on $17 billion of AT1 bonds in Credit Suisse during its takeover, triggering big losses for the investors.
De Cos said the fact that markets have not “fully internalised” that AT1 bonds can be written down in a crisis to bolster a bank is not new, and questioned the need for a radical overhaul.
“Let’s see whether we modify the current treatment of these instruments, or we just have to live with this and we can work on supervisory guidelines, or perhaps more transparency and explanations to the market so that these instruments are well understood by everybody,” said de Cos.
Reporting by Huw Jones; editing by Christina Fincher and Jane Merriman
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