European and Japanese banking officials are reportedly enraged that the (US-backed) world's top banking regulator would dare to demand banks hold higher levels of capital to meet credit, market and operational risks. These rules are not new, of course, but the bankers, used to getting their own way reportedly demanded in two heated meetings this week that The Basel Committee 'scale back; the rules to ensure the rules have no “particularly negative consequences for specific regions,” such as Europe.
As Bloomberg reports,
Some European officials went so far as to say they wouldn’t adopt the proposals on the table, according to the people, who asked not to be identified because the deliberations were private. If the European Union — home to nearly half of the world’s most systemically important banks — balks at implementing the Basel Committee’s rules, it could undermine the global regulator’s authority and contribute to fragmentation of the industry.
The Basel Committee is racing to finish work on the post-crisis capital framework known as Basel III by the end of the year, and it’s under instructions not to increase capital requirements significantly in the process.
The debate in Basel pits bank regulators from Tokyo to Frankfurt against a U.S.-backed push for stiffer standards, which take effect when they’re implemented by national governments.
The industry is not happy. Despite the mainstream media's proclamations of the fortress-like balance sheets of banks, the banks themselves, and their revolving-door regulators, are unable to meet new capitakl regulation without unintended consequences…
The industry says the proposed revisions to risk-assessment rules and limits on banks’ use of their own models to make these calculations would send capital requirements spiraling. Key policy makers have heeded their message. German Finance Minister Wolfgang Schaeuble last week insisted that the Basel Committee not only keep any overall increase in capital requirements to a minimum, but also ensure the rules have no “particularly negative consequences for specific regions,” such as Europe.
European regulators told the Basel Committee that its sweeping new proposals, dubbed Basel IV by the industry, were impeding banks’ ability to finance the economy and even to pursue mergers and acquisitions, one of the people said.
Shunsuke Shirakawa, vice commissioner for international affairs at Japan’s Financial Services Agency, has said the regulator needs to “make adjustments” to bring the new rules in on target. The Basel Committee’s members include Japan’s FSA, Germany’s Bundesbank and the U.S. Federal Reserve.
William Coen, secretary general of the Basel Committee, told reporters on Sept. 13 that the regulator’s goal is not to drive capital requirements higher as it finishes up Basel III.
“If we wanted to increase capital, that would be far easier than what we’re doing at present,” Coen said.
“We’re doing this work to reduce risk-weighted asset variability. And why are we doing that? To restore confidence in the risk-weighted capital ratios and to fully restore credibility to the capital adequacy framework.”
A good point – nothing like threatening mutiny to show just how 'un-confident' the world's investors should be?
So to summarize: German, Italian, and Japanese banking regulators just admitted that it they are forced to meet The Basel Committee's (long-warned) capital regulations there will be chaos… and therefore Basel should back off or they will all revolt and leave (signaling to investors that they are – for intent and purpose – under-capitalized as far as the world's top regulator is concerned). Now we have just one question – will you leave your cash on deposit at any of the banks that 'mutiny' from global risk regulations? ….. Thought not.
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