18 August 2021

Bloomberg: Banks lobby across the Berlaymont to water down capital reforms

EU banks are knocking on doors across the European Commission in their efforts to water down major upcoming banking reforms, according to a POLITICO analysis of public lobbying disclosures.

The Basel III capital reforms have been agreed globally and the Commission is due to present a legislative proposal in October to implement them in the EU. But the industry is arguing the international reforms will damage the economy by limiting lending during Europe's recovery from the coronavirus pandemic.

The sector’s attempt to win reprieve extends beyond the Commission’s financial services department (DG FISMA), which is leading work to bring in the final standards. Lenders have met with the top teams of Commission President Ursula von der Leyen, Executive Vice President Valdis Dombrovskis and Economy Commissioner Paolo Gentiloni on Basel III, public records show.

“For the financial sector to resort to talking to other commissioners, I haven't seen that very often,” said Kenneth Haar, researcher and campaigner at Corporate Europe Observatory. “I would take that as a sign that either they feel uneasy about where things stand on Basel III, or they simply apply all the methods that they can think of.”

The Commission is so far leaning toward faithful implementation of the reforms, against the wishes of both the industry and some national governments including France and Germany.

There’s a lot at stake for European banks, which are facing a huge capital hike of €124.8 billion according to estimates from the European Banking Authority. Industry-commissioned studies put that figure at up to €400 billion.

“The reduction in bank lending of severe interpretation of Basel III would play against the efforts that the EU is making providing funds for the economy,” Ana Botín, president of the European Banking Federation, wrote in a letter to von der Leyen in July.

The final Basel III requirements would limit banks’ ability to use their own internal models to lower their capital requirements, meaning that banks will have to put aside more money to cover their risks. The global reforms aim to shore up the banking system by making sure lenders can withstand losses and by standardizing how they assess risks on their balance sheets....

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