ECB Divided Over Report Indicating Major EU Banks Have Lower Capital Requirements Than US Competitors - FT
According to a report, the European Central Bank (ECB) is discussing whether to publish a sensitive study showing that the capital requirements for major credit institutions in the EU would increase by double-digit percentages if they were subject to the same regulations as their large counterparts on Wall Street.
Some senior policymakers at the ECB are pushing for the report, or at least some of its findings, to be published in response to intense lobbying by the banking sector aimed at diluting the rules implementing global capital requirements in the industry, as outlined in the Basel agreement.
If the U.S. dilutes or even abandons its plans to implement Basel rules for its banks in the wake of the expected wave of deregulation following Donald Trump's anticipated victory in this month's presidential election, it is likely that pressure on EU banks will increase.
The package known as Basel III is an ambitious revision of bank regulations designed to limit how much lenders can use their own models to present their balance sheets as stronger than they actually are, adopted by regulators worldwide after the 2008 financial crisis. The ECB report, completed last year but never published, examined what would happen to EU bank capital requirements if they were subject to existing U.S. prudential rules.
According to two people familiar with the report, officials in Frankfurt found that applying U.S. rules to the largest EU banks would raise minimum capital levels by double-digit percentages. The largest credit institutions in the EU and the U.S. must meet additional capital requirements based on their systemic importance and the potential impact of their collapse on global finance.
Minimum capital levels for the largest U.S. banks include a buffer reflecting the results of the Federal Reserve's annual stress tests and a "first pillar" requirement of 4.5% of risk-weighted assets, along with an additional surcharge based on their systemic significance. Some officials are reluctant to publish the ECB's findings because they derive from several assumptions that are likely to be contested by the banking industry.
Officials believe these objections could lead to disputes between lenders and central bank supervisors. Others argue that the report is based in part on confidential data, complicating its publication. The report was compiled as part of lobbying efforts aimed at diluting the new rules, which it claims further disadvantage the EU banking sector compared to their U.S. counterparts by highlighting that they hold higher capital levels.