FRANKFURT (Reuters) - New global banking rules should not make banks hold more capital than already required and should ease the regulations on smaller lenders, Germany's central bank said on Thursday.
Bundesbank board member Andreas Dombret said Germany would rather have no deal than a bad one when it came to the proposed global rules.
An international agreement on new and tougher banking rules, known as Basel III, has been repeatedly delayed, thwarting efforts by the Basel Committee of global financial regulators, which oversees U.S., European and Japanese banks, to reform rules on capital requirements and loss-absorbing protection.
Europe and Japan oppose the current reform prepared by the Basel Committee as they feel the review goes too far and increases disproportionately what capital banks must hold against risk.
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Dombret said that a 'one-size-fits-all' approach in regulating banks from large international investment giants to small savings cooperatives is inappropriate.
The operational and compliance burdens need to be cut for smaller firms, even if capital and liquidity requirements are non-negotiable, he said at a conference in Berlin.
"The motto must be: we'd rather have no agreement in Basel than a bad one," Dombret said.
"The Bundesbank is particularly keen not to raise capital requirements further in the Basel III finalization process," he added.
Dombret, who worked as an investment banker before joining the Bundesbank's board, urged a two-tier regulation with less strict rules for smaller lenders and the full application of Basel III only for larger, international banks, which pose a greater risk for the financial system as a whole.
Such a regulation framework would be more risk-adequate and would make negotiations easier on a global level because national specialties would no longer be a concern for the Basel Committee, he said.
"Such a systematic approach to the relief of smaller institutions (...) is usually much better than a patchwork rug of exceptions," he added.
(Reporting by Andreas Framke; Editing by Balazs Koranyi/Jeremy Gaunt)