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European lawmakers are urging European Union policymakers in Brussels to fine-tune the new Basel III rules on bank capital

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European lawmakers are urging European Union policymakers in Brussels to “fine-tune” the new Basel rules on bank capital, which were agreed internationally last month, when applying them to EU institutions. The Basel III framework was hammered out by the Basel Committee on Banking Supervision, the global rule-making body, in September, and the new standards are seen as one of the most important regulatory reforms since the financial crisis. They will be implemented in Europe via a legislative package known as CRD IV, which the European Commission will propose either later this year or early in 2011. That will require approval from both the EU’s 27 member states and the European Parliament.

But on Thursday, in a pre-emptive move, MEPs set out some of their concerns, which they want officials in Brussels to address as they turn the global framework into European law. They pointed out, for example, that European companies depend heavily on the lending capacity of the banking sector – in contrast to US businesses, which fund activities more heavily through the capital markets.  “The revised rules should take into account such differences without penalising certain markets or business models – otherwise there is a risk of harming the European economy and industry,” they suggested.

The MEPs also called on the commission to produce a “comprehensive assessment” of the impact that the Basel III changes would have on the European economy, and to look into inconsistencies in the way in which Basel rules had been applied globally. At a more technical level, the lawmakers urged the commission to look carefully at what should count as “core tier one” capital – which measures the high quality cushion of capital banks are required to hold – and the use of leverage ratios. The latter, they cautioned, “can create adverse incentives and may be designed in a way which does not include off-balance sheet items or derivatives, for example”.  “The Basel agreement seems to be considered a done deal. But there are still some important pending issues and no level playing field between the EU and the US,” said Othmar Karas, the Austrian MEP spearheading the parliamentary initiative.

By Nikki Tait in Brussels in the Financial Times


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