European Bank Reserves Fall Short of Basel Rule

Basel requirements not satisfied, although target met, European Banking Association report finds

(Photo: AP) (Photo: AP)

While EU banks met a target of 114.7 billion euros ($148.5 billion) in capital reserves, according to the European Banking Association (EBA), they would not have met the tougher requirements of the Basel Committee on Banking Supervision had they been enforced by the end of 2011. For that, the region’s 44 largest banks would have had to set aside an additional 312 billion euros.

Bloomberg reported Wednesday that the Basel Committee’s international team of regulators found flaws in the EU draft implementing measures for Basel III standards. However, Michel Barnier, who heads up the EU’s financial services sector, expressed “reservations” about some of the Basel findings, “which do not appear to be supported by rigorous evidence and a well-defined methodology.”

The peer review cited shortcomings in the EU’s draft rules that included insufficient detail on what counts as core capital. It also expressed concern that capital rules for bancassurers, which are banks with insurance arms, would not be as stringent as the standards imposed by Basel.

Basel’s January 2013 deadline has proved to be a tough one for European lawmakers, who have to come up with enough core capital to meet Basel’s requirements that triple the old standards. In addition, banks have to have buffers of liquid assets. The regulations were made public in 2010, and banks have till 2019 to satisfy all the requirements.

In December, European banks were told by the EBA that they had to come up with an additional 114.7 billion euros in new capital. They are required to keep a core Tier-1 capital ratio of 9%, and must also maintain other reserves, termed a sovereign buffer, as a safeguard in the event of falling eurozone sovereign bond prices.

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