Top bank supervisor warns against watering down the Basel rules

Brussels The supreme bank supervisor of the European Central Bank (ECB) calls for stricter regulation for European banks. Politicians should minimize deviations from the international Basel standards as much as possible, said Andrea Enria on Tuesday at a hearing in the European Parliament’s Economic Committee.

The EU Commission, member states and European Parliament are currently negotiating the implementation of the Basel requirements in Europe. The focus is on stricter capital requirements that are to apply from 2025.

However, MEPs and national governments want to adopt numerous exceptions for certain banks or business sectors. In addition, long transition periods should apply so that the institutes can adapt to the new requirements.

ECB Banking Supervisor: Comply with Basel requirements to protect banks

After the bankruptcy of the Silicon Valley Bank in the USA and the emergency rescue of Credit Suisse, the European banking reform is back in focus. Enria said that not only in the US, but also in Europe, here and there, people have decided to deviate from international standards.

The Basel guidelines are “not the Bible”, but they are the best supervisors have come up with to protect the banks. He would therefore always recommend following them.

ECB supervisor Enria: Harmonize deposit insurance in Europe

In particular, he would be cautious about relaxing the rules for real estate financing. Because if there were problems somewhere, the overseers and legislators would be blamed afterwards.

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Another danger is that other countries could follow the European example and only partially implement the Basel requirements, said Enria. As a result, the global financial system would be weaker.

The ECB supervisor also called for harmonization of deposit protection in Europe. A common European deposit guarantee failed last year in the Euro Group due to resistance from some member states. Now the Commission wants to at least standardize the rules of national deposit insurance.

ECB: Interest rate hikes are a profit driver, but payment defaults are possible

Enria considers the risk of a banking crisis in the euro zone to be low. The banks’ average core capital ratio was 15.3 percent at the end of the year. The average return on equity was 7.7 percent. Those are very good values.

In its annual report on supervisory activities published on Tuesday, the ECB emphasized that the central bank’s interest rate hikes are an important profit driver for banks. This should therefore remain the case in 2023. However, the ECB warns that the number of loan defaults could also increase if customers experience payment difficulties due to higher interest rates.

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First publication: 03/21/2023, 6:22 p.m