Global bank capital rules should be applied in full across the European Union, the bloc’s banking watchdog said on Monday, dashing industry hopes for leniency after a decade of intense regulation.
The European Banking Authority (EBA) published its recommendations to the EU’s executive European Commission on implementing the final section of Basel III that was agreed in December 2017.
Basel, written by banking regulators from the world’s main financial centres, is a core regulatory response to the financial crisis of 2007-09, forcing lenders to hold far more capital.
“The EBA supports the full implementation of the final Basel III standards, which will contribute to the credibility of the EU banking sector and ensure a well-functioning global banking market,” the watchdog said in a statement on Monday.
“Against this backdrop, the credibility benefit the EU banking sector will derive from strictly complying with the framework far outweighs… the overall limited regulatory capital gains assessed in this report in relation to keeping certain EU deviations.”
It will be up to the European Commission to decide it accepts the recommendations in full or in part when it proposes legislation to enact the final leg of Basel.
The EBA has already announced that implementing Basel in full will increase the minimum capital requirement by an average of 24.4 percent on average, or about 135 billion euros in terms of core equity, a common measure of a bank’s stability.
The bulk of the shortfall in capital is almost entirely among large banks, the EBA said.
The recommendations come at a time of slowing growth in some euro zone countries like Germany, and worries about the European banking sector’s ability to compete with rivals lenders from the United States.
“Decision makers will face considerable industry and political challenges as to whether strict adherence to global standards, and the resulting significant increase in capital requirements, are what the EU banking system and the wider economy need right now,” consultants Deloitte said.