NEWS Release - "Burden won't stay the same for all"
Bundesbank Executive Board member Andreas Dombret on the new Basel reform package and what it will mean for banks - Interview conducted by Yasmin Osman. - Translation: Deutsche Bundesbank
Mr Dombret, studies like the one presented by the IIF bank lobby group reveal that the Basel package will drive up banks' capital requirements by at least 46 % and by 74 % in the worst-case scenario. Is that acceptable or will the levers need to be readjusted?
The calculations you are referring to, and especially the worst-case scenario, go far beyond the results reported to the Basel Committee, and they also far exceed the data reported to us from Germany. But these results, too, are currently still pointing to a sharp increase in risk-weighted assets at some institutions. That is why we are comprehensively analysing the impact on German banks in an effort to identify any unwarranted increases that might make it necessary to adjust the proposed rules.
It has been said that the increase in capital requirements will be "not significant". Will things stay that way? And if so, what would be a "non-significant increase" that would also be acceptable in your eyes?
Yes, we are sticking to the declared objective that the capital burden will not, on average, rise materially over the current requirements. But given that another major objective of the reforms is to bring capital adequacy requirements more into alignment with the risks that institutions incur, this also means that the burden will not stay the same for all banks. So looking ahead, it may well be that individual institutions running riskier business models will be asked to hold more equity capital to adequately back the risks they encounter. By the same token, of course, institutions with less risky business models might see their capital requirements ease somewhat.
The IIF's calculations suggest that European banks will be squeezed more than their US counterparts by the new provisions. Why is that?
That finding is not borne out by the impact study conducted by the Basel Committee. But I am backing the idea of an impartial review of whether Basel III should be introduced in the EU only for the major systemically important banks, which is a little like the situation in the USA. Regulatory proportionality is a major concern for us at the Bundesbank.
So where do you think the rules need to be tweaked to ease the after-effects of the Basel package?
At the Bundesbank, we are determined that Basel III needs to meet the declared objective of capital neutrality. But you must understand that I cannot pre-empt the committee's negotiations.
What comes next in the reform timeline?
The September meeting, and the subsequent sessions, will be crucial for wrapping up the package of reforms by the end-of-year deadline. It's about time institutions had a robust regulatory basis they can count on for guidance in their business activities. Might I also add that the Bundesbank and BaFin liaise closely with Germany's banks. We have placed Basel III at the top of the Bundesbank's agenda for the second half of the year, and we will be holding talks with every level of the German banks involved and with the German Banking Industry Committee.
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