The new Basel capital requirement standards agreed in late September are tackling a number of the right issues but much preparatory work is still needed if they are to be transposed into laws which ensure a global level playing field, reduce excessive risk and at the same time do not hamper economic growth. This was the main message to come out of an own initiative resolution adopted on Thursday by the EP plenary.
The resolution gives a foretaste of the position the Parliament will take later this year when it begins dealing with the Commission’s legislative proposal (CRD IV) which will put into law the Basel standards.
"The Basel agreement seems to be considered as a done deal. But there are still some important pending issues and no level playing field between the EU and the US" draftsman Othmar Karas (EPP, AT) said when taking the floor before the vote.
Some of the important points raised by the resolution:
• Attention must be given to the cumulative impact of the effect on banks of the new Basel standards, and all other regulations currently in force or under preparation.
• No analysis has been undertaken of the effects on the real economy of the figures agreed in Basel. The Commission should produce a comprehensive assessment of the consequences of the new standards.
• The European specificities regarding corporate financing need to be taken into account in the Commission’s legislative proposal. A one size fits all approach can stifle economic recovery.
• The definition of what is to be considered as capital is still pending. The Commission must look closely at the eligibility criteria for core tier 1 capital when it draws up the CRD IV proposals.
• Recently adopted laws in the US can lead to serious inequalities in the implementation of the current Basel standards (Basel II) and the ones agreed upon by the Basel committee in September. This is particularly the case due to the limitation of the recognition of external rating agencies and only applying the standards to certain types of banks. The resolution calls on the Commission to look into this matter due to concerns about the lack of a global level playing field.
• Although a useful tool, great care must be taken with regards to the use of the leverage ratio concept since it can create adverse incentives and may be designed in a way which does not include off-balance sheet items or derivatives for example.
• It will be important to monitor that banks do not pass on the costs of implementing the Basel III rules to end users of financial services.
The Commission is due to present its proposals for legally implementing the Basel standards by spring. As co-legislator, the European Parliament will subsequently be tasked with coming to a final agreement with the Council on a legal text.
