The disagreement between bankers, finance ministers, and the Basel Committee which regulates banks, continues.
Basel III is the post-financial crisis regulatory framework which forces banks to hold much higher levels of capital, to ensure that they can maintain liquidity in the event of another crisis. Disgruntled bankers insist that the Committee’s latest proposals amount to “Basel IV”. The Committee denies this and describes what it is doing as simply a “recalibration” of Basel III.
France and the USA oppose further circumscriptions
Whether this process qualifies as a recalibration or not, there is considerable resistance to the proposals, led by France and the US. The banks complain that they are not making money as things stand, and will make less if their activities are further circumscribed. This will lead to lower lending to businesses, a development that national governments don’t wish to see. The French vehemently oppose any requirement for banks to hold still more capital and have said that any raising of capital levels will disadvantage European banks in the face of competition from the US.
Risk calculations should be standarized
Meanwhile, the Americans have launched a review of a Basel review. The Committee wants to conduct a fundamental review of the trading book rules for banks. These are the rules that govern banks’ activities in the financial markets and the amount of capital they need to hold given their current positions in those markets. The banks currently use in-house models to work out how risky their trading is. The proposal is that the Committee should have more say in how this risk is calculated.
The US wants the Committee to delay their review as they consider it needs “recalibration” – although the ironic echo of the Committee’s words was probably unintended. The US has announced that they now intend to hold their own review of the matter.