LONDON Nov 30 An outline deal on how much
capital banks must hold to avoid a repeat of the financial
crisis has taken shape, a top regulator said on Wednesday,
despite the failure of negotiators at a two-day meeting to reach
agreement on global standards.
The European Union had threatened to boycott the proposed
rules unless they are diluted and agreeing a deal is seen as a
litmus test for a global post-crisis regulatory consensus.
This is showing signs of fraying after a welter of
rulemaking, but Stefan Ingves, chairman of the Basel Committee
of banking regulators from nearly 30 countries, said "very good"
progress was made on an outline deal during a meeting in Chile,
which ended on Tuesday.
Basel has set itself an end-of-year deadline for a deal on
measures which have been challenged by the EU and Japan who say
that the proposed rules would bump up capital requirements too
much and risk disturbing the flow of credit to the economy.
Meanwhile, U.S. president-elect Donald Trump has said he
will scrap Dodd Frank, America's main reform of Wall Street,
which includes many globally-written rules.
Basel's original proposals unleashed a major lobbying
campaign by banks, later backed by European policymakers and the
meeting in Chile failed to reach a final deal.
That means the pressure is now on to iron out differences in
time for Basel's oversight body of central bank governors and
heads of supervision (GHOS) to endorse a package in January.
The aim of the package is to end wide differences in how
much capital banks across the world set aside to cover similar
risks. This would be done by curbing flexibility in computer
models big banks use to tot up risks on their books.
SLOW TRAIN COMING
A controversial part of the package is an "output floor" for
capital, below which a bank could not go, irrespective of what
their models say is the right amount.
"I expect an aggregate floor will be part of our package of
reforms," Ingves said in speech delivered in Chile on Wednesday.
But the final configuration of the floor is, however,
subject to the endorsement of GHOS - an indication of how the
most controversial parts of the package will need to be brokered
by the committee's political masters.
Ingves said that at a "high level" the package, which
completes a post-financial crisis bank capital reform known as
Basel III, includes all the main elements Basel had proposed - a
sign that no key element has been completely ditched so far.
But changes are being made to all the main elements.
The package will include a revised "standardised" approach
for banks to assess risks from loans, which will be "neutral" in
terms of its impact on capital requirements, Ingves said.
The use of internal models by big banks will be "largely"
retained - reassurance for European banks, where many are in
use. And a revised method of measuring operational risks like
fines for misconduct, will replace existing methods.
"It is important to note that a lengthy implementation and
phase-in period is likely to be part of this package," said
Ingves, who is also governor of Sweden's central bank.
World leaders and GHOS, chaired by European Central Bank
President Mario Draghi, have agreed that the package of rules
should not significantly increase the amount of capital in the
overall banking system.
"I am confident that the changes that the committee has
agreed move in that direction," Ingves said.
Central bankers say the changes will help reduce investor
scepticism in the capital ratios banks publish and thereby help
improve their market valuations.
(Editing by Alexander Smith)