Bank lobby warns EU finance ministers of cost of new capital rules

By Maya Nikolaeva

PARIS (Reuters) – New international rules could require European banks to raise hundreds of billions of euros in fresh capital, contrary to assurances from G20 finance ministers earlier this year, the European Banking Federation has warned.

The ministers had said there should be no overall significant increase in capital on top of the Basel III requirements introduced after the financial crisis, the EBF said.

Governments had to spend billions of dollars of taxpayer money to rescue banks that ran into trouble and could have threatened the global financial system if allowed to go under during the 2007-2009 financial meltdown.

Since then, regulators from the Group of 20 economies have been trying to find ways to prevent this happening again.

However EBF president Frederic Oudea, who is also Societe Generale’s CEO, warned in a letter to Slovakia’s Finance Minister Peter Kazimir, who will chair EU finance ministers’ meetings from July, of the danger of going too far.

“European banks…are deeply troubled that an overly conservative calibration of the final rules will inevitably result in further increases in capital requirements,” he wrote in the letter seen by Reuters and first reported by Les Echos.

“Although exact figures at present are not available in the absence of final rules, there is nevertheless a sense across the sector that the fresh capital required would amount into the hundreds of billion euros”.

Financial Services Commissioner Jonathan Hill said in reference to decisions made or to be made by the Basel Committee on Banking Supervision that “some approaches taken in international fora are shaped for the interests in different jurisdictions”.

“We have to think about the specificities of the European economy and the European banking sector,” he said at a European Parliament hearing on Tuesday.

Banks are concerned about rules the Basel Committee, which establishes global standards for banks, sets for their models for assessing risks, which are likely to be standardized rather than based on internal models as before.

Further increases in capital requirements could only harm banks’ capacity to finance the economy, the letter said, urging EU finance ministers to “consider the ramifications” of the new rules for Europe at a meeting in July.

Banks would have to adjust to the new rules by either raising capital or further deleveraging, further stressing many banks already struggling with a return on equity already below their cost of funding.

The Basel Committee declined to comment.

However Stefan Ingves, chairman of the group, told the Reuters Regulation Summit in May there would be no substantial capital increase in the banking system as a whole once the rules have been completed by year-end.

(Additional reporting by Francesco Guarascio in Brussels; Editing by Leigh Thomas and Alexander Smith)