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| Europe |
| Brussels stiffens bank capital requirements |
| 2008-10-01 |
| Banks will face tougher requirements on what capital they must hold to support their operations under new rules announced in Brussels on Wednesday. Supervisory arrangements for those with cross-border operations in Europe will also be strengthened. Long-awaited reforms to the so-called Capital Requirements Directive are being used by lawmakers in Brussels to tighten banking practices and supervision in the wake of the credit crunch. But, although the proposals were drafted after the financial crisis first struck in August last year, they pre-date the latest series of bank failures. Senior officials at the European Commission have acknowledged they will almost certainly need to be supplemented by other measures. The legislation will require approval by both the European Parliament and member states, and could undergo further alterations in the process. But on Wednesday, Charlie McCreevy, EU internal market commissioner, suggested that the recent turmoil might at least have provided a more favourable wind. “There’s more support for what I’m doing today than I had a month ago – or even 10 days ago,” he said. On the supervisory front, the key change in the CRD is to make “colleges” of supervisors mandatory for all banks with cross-border operations. These colleges would be made up of officials from all the countries where the bank had operations and, where possible, decisions would be made by consensus. However, the supervisor in the bank’s home country would have the final say in two key areas – reporting requirements and the issue of extra capital requirements in specific jurisdictions. There would also be a mediation mechanism in the event of disagreements through the London-based Committee of Banking Supervisors. Results would not be binding on the home country supervisor but it would then have to explain its actions. The proposals fall short of centralised supervision, thought desirable by some of the EU’s largest member states. Even so, there is likely to be political resistance to these enhancements from some of the smaller countries – especially in eastern Europe – which fear they will play second fiddle to supervisors in the big financial markets. Another of the more contentious proposals is that banks that devise and then offload securitised products should be forced to retain some of the risk. Such products have been at the heart of the current financial crisis and under the new rules, originators would be required to retain capital for at least 5 per cent of the exposures they securitise. Commission officials had wanted to set the figure at 15 per cent, but the move prompted an outcry by banking groups – “ferocious”, in the words of Mr McCreevy – and the limit was revised downwards. On Wednesday, banking associations would not comment on the final shape of the securitisation proposal. Meanwhile, under the CRD, there will be a 25 per cent limit on all interbank exposures – the amount they lend to each other – with far fewer exceptions to this than permitted at present. Finally, there are some technical provisions notably aimed at harmonizing the treatment of hybrid instruments (those with both debt and equity elements). The commission, meanwhile, will bring forward separate legislation next month requiring credit ratings agencies to register and meet standards if they wish to operate in Europe. |
| Posted by:lotp |
| #1 Pointless Window Dressing. "Brussels increases banking bureaucracy, but leaves bank risk unchanged" should be the headline. |
| Posted by: Bright Pebbles 2008-10-01 14:03 |