New capital rules may help Europe’s weakened banks

Bloomberg

European banks have found a silver lining to their recent troubles: they can make a case that they’re too weak to abide by new regulations being set by Brussels.
After years fighting a rearguard battle against tighter requirements set by global regulators, some bankers in Europe now say they sense an opportunity to persuade local policy makers to go easier on them. Banks would need about 135 billion euros ($149 billion) to comply with the standards as first drafted by the Basel Committee on Banking Supervision, according to an estimate this year by European Union regulators.
James von Moltke, Deutsche Bank AG’s chief financial officer, told analysts recently that he sensed a “shift in tone” among politicians and is optimistic that the final rules could be “less onerous” for the industry once they’re put on the books in Europe. That is particularly important for Deutsche Bank, which Citigroup Inc analysts have said faces the prospect of raising more capital to meet the standards.
“It is simply bad medicine considering the current signs of economic slowdown in Europe,” Ulrik Nodgaard, chief executive of banking association Finance Denmark, said in an email.
Withstanding Earthquakes
The European Commission, the EU’s executive arm in Brussels, is holding a conference on the latest standards, which were agreed to by the Basel Committee in December 2017. The rules must be enacted into local law by the EU and individual countries around the world, giving politicians the opportunity to shift course.
The standards determine how banks calculate the risk of mortgages, corporate loans and other assets and, as a result, the capital they need to cover the risk.
The Commission could propose legislation to implement the Basel rules in the second quarter of next year, Valdis Dombrovskis, the EU commissioner in charge of financial services, said in remarks prepared for the conference.
“There will clearly be a focus on European specificities, where increases in capital requirements might have a disproportionately negative impact on some specific sectors, business models or activities,” Dombrovskis said.
But banks shouldn’t necessarily get their way, according to Andrea Enria, chair of the supervisory board at the European Central Bank, who called on lawmakers to implement Basel faithfully.
“European legislators must stand up to national interests and the lobbying of some banks,” he said in his conference speech.