Brussels has defended its decision to grant European banks more time to implement new rules on bank capital, saying supervisors need longer to prepare while lenders focus on financing the post-pandemic recovery.
The European Commission confirmed on Wednesday that the new EU rules to implement the final part of the Basel III agreement will come into effect in 2025. The reforms had been due to come into force by 2023 under the global accord.
Valdis Dombrovskis, executive vice-president at the commission, said he was open to international discussion on the topic, but that Europe needed the extra time to pass the required legislation, some of which had to be enacted by individual member states.
The Basel measures set new standards for how international banks should measure their capital so as to create consistency across national borders. They are the final part of a package of measures to try to make banks more resilient following the 2008 global financial crisis.
“We are being realistic,” said Mairead McGuinness, financial services commissioner, in a press conference, pointing out that Basel III had already been delayed a year because of Covid-19. “There will probably be lots of international conversations, but our proposal is out today and we believe our timelines reflect the reality of how we legislate and how it is then put into practice.”
Carolyn Rogers, secretary-general of the Basel Committee on Banking Supervision, told the FT last week that the new rules should be implemented “consistently and as soon as possible”. Other major jurisdictions have yet to set out their full plans for implementation.
The new rules establish a “floor” for the capital that banks need to set aside against certain types of assets. This will restrict banks’ ability to use internal models to arrive at lower capital requirements.
In the EU, this minimum will also be subject to special adjustments aimed at addressing certain asset classes, such as low-risk residential mortgages and smaller firms that are not rated by credit agencies.
Under the EU’s new banking rules, the oversight of complex banking groups, including fintechs, will be enhanced. There will be minimum standards for the regulation and supervision of branches of banks headquartered outside the EU.
EU supervisors will also have new powers to assess environmental, social and governance risks, as part of their regular review of lenders. However some MEPs and lobby groups criticised Brussels for not taking immediate steps to adjust capital requirements for fossil fuel investments.
The commission said it is “exploring this idea” and has asked the European Banking Authority to assess if and how capital requirements might vary depending on the environmental and social impact of the assets held by institutions. This report is due in 2023.
Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group in the European Parliament, said it was welcome news that the role of sustainability in bank capital was being strengthened.
“However, there is no clear and binding timetable for the overdue integration of sustainability risks into the hard capital requirements” of banks, he said. “Instead of waiting another two years for an EBA report, the EU Commission should present a new legislative proposal as soon as possible.”