Reforming global bank capital requirements: What does it mean for Europe?
The global standards for bank capital requirements will be revised once again. The package that forms Basel III, or Basel IV as it is sometimes called, was discussed at a timely high-level seminar organised by CEPS and the International Research Centre on Cooperative Finance (IRCCF HEC) Montreal in the European Parliament on November 25th. All participants underlined the need for revisions, but there were differing views on how the capital requirements should be revised. The revisions currently under debate include measures to change both the standardised and internal ratings-based approach for credit and operational risks, and surcharges on the leverage ratio of global systemically important banks. The rationale for the revisions is that the supervisors want to make the simpler standardised approach a more credible alternative to the internal models-based approach, and reduce the differences between the models with a more restrictive capital floor. Bankers fear that the capital floors will lead to higher-than-necessary capital requirements, which will restrict the ability of banks to lend to the real economy. Researchers from IRCCF, CEPS and OECD emphasised the need for a more stringent back-up requirement in the form of a higher leverage ratio. Regulators argue that European banks have sufficiently increased their capital in recent years, with higher and better capital requirements.