A long-awaited package of reforms designed to stop banks gaming existing post-crisis rules will be finalised “in the near future”, according to the head of the committee that sets the worldwide standards.
The comments by Bill Coen, the secretary general of the Basel Committee on Banking Supervision, on Thursday come despite the reform package being bogged down in a technical dispute that has pitted European banks — and latterly, politicians — against their US counterparts.
In a speech in London, Mr Coen gave his clearest hints yet that the reform package would have a years-long implementation period, and he gave a thinly veiled suggestion as to the final calibration of a regulatory tool at the heart of the technical dispute.
“Recall that in 2010, the Committee adopted 2019 as the date by which the Basel III requirements needed to be fully phased in. I suspect a similar approach will be taken for this set of revisions,” Mr Coen said.
“I am hopeful that we can finalise the reforms in the near future.”
Those familiar with the discussions told the Financial Times there is pressure to have the reforms finalised by the next meeting of the G20 group of nations in July.
Mr Coen said international co-operation over rules was a way to avoid fragmentation and a “race-to-the-bottom” of regulatory standards. Concerns that have been heightened since the UK’s Brexit vote and the deregulatory stance of the administration of President Trump in the United States.
The committee’s planned reforms to the post-crisis “Basel III” rules have caused consternation because the banking industry sees them to be another round of capital-raising by stealth, dubbing the package Basel IV — something policy makers have pushed back strongly against.
The new Trump administration has also delayed progress as the committee’s various members wait to see who will replace Dan Tarullo as the US’s top banking supervisor. Mr Tarullo has played a key role in discussions at the Basel Committee, which has missed various deadlines to sign off on the reforms.
The committee works by consensus and has no formal enforcement powers against countries that fail to implement its reforms. A refrain throughout its history has been that “nothing is agreed until everything is agreed”.
The technical dispute has centred around the so-called output floor, which limits the extent to which banks can use their own models to calculate the riskiness of their lending. The floor in effect prevents them from using risk estimates that are too far below the outputs of a standardised model devised by regulators.
The Europeans, and particularly Germany, where banks use their own models to a far greater extent, were against such a floor, fearing that it would disproportionately hit its banks, but the committee is now reaching a compromise, the FT previously reported. Recent reports have suggested that the committee is looking at setting the floor somewhere between 70 to 75 per cent.
Mr Coen specifically referenced that range in his speech, saying that the output floor is “simple and straightforward — a bank’s measure of risk-weighted assets (using internal models) can in aggregate be no lower than, say, 70 – 75 per cent of the risk-weighted assets that would result if the bank had applied the standardised approaches to determine its risk-weighted assets.”