Europe capitalised banks face disappointment over Basel

Bloomberg

Banks in Norway, Scandinavia’s most prosperous economy, are among the best capitalised in Europe thanks to rules that are considerably stricter than those recommended by the Basel Committee on Banking Supervision.
Now, the bankers’ association in Oslo is hoping local authorities will ease Norwegian requirements after the Basel Committee sent out its completed framework last week. But Norwegian banks may be in for a disappointment.
Pal Ringholm, chief credit strategist at SpareBank1 Group, says he sees no reason to expect Norway’s regulator to ease overall standards for banks such as DNB ASA, the country’s biggest lender.
“I don’t expect any Christmas presents from the Financial Supervisory Authority when it comes to capitalization of Norwegian banks,” he said in a phone interview. “My guess is that this will emerge as fairly neutral.”
The Basel Committee’s final recommendations focus on ensuring banks don’t drive down capital requirements by using internal models to determine how risky their assets are. The so-called floor designed to stop buffers falling too low was set at 72.5 percent, well below the 80 percent Norwegian banks currently need to comply with.
“This is important in the development of competitive conditions for banks operating in Norway,” Erik Johansen, director at Finance Norway, said in a statement. The lobby says that Norway could be the first mover in Europe to adopt the new output floor.
But Ringholm says that’s unlikely. “One could imagine that there would be capital easing for Norwegian banks, but over a 10-year period I think that Norwegian authorities would pull other levers to make this a neutral outcome,” he said.
The Finance Ministry, which declined to comment, has said it will ask the financial regulator to come up with new a proposal after the Basel rules are revealed.