10 December 2012

Bloomberg: Europe's banks seek Basel review on eve of implementation

Christian Clausen, president of the European Banking Federation, said the cumulative impact on lenders and the economy of new rules is unknown because of their piecemeal creation during the global financial crisis. After correctly anticipating Europe won’t be ready to implement tougher standards on schedule, Clausen now wants politicians to allow an impact study to measure the economic cost of all the requirements due to be enforced.

“We don’t really know the implications”, Clausen, who is also the chief executive officer of Nordea Bank AB (NDA), said in an interview in Copenhagen. “Remember, it’s come in steps. It’s not one plan. It’s many plans put together.”

The Basel committee meets this week to resolve clashes over the liquidity provisions, which European Central Bank President Mario Draghi has said could choke interbank lending.

Clausen, whose own bank is cutting about 10 per cent of its workforce “over a few years” to adjust to stricter rules, estimates capital ratios may climb as high as 25 per cent of risk-weighted assets if provisions for bail-in instruments are included. Nordea has already eliminated about 7 per cent of its employees, the bank said last week.

“The bigger the capital, the bigger the implications”, Clausen said. “Do we want to build a society, an economy, with such a high capital level that new investments get expensive and therefore difficult to do?”

The role bankers played in creating the financial crisis makes it “risky” to speak out, Clausen said. Still, decisions about how to regulate banks are also decisions about how to run the economy, he said. “It is difficult to see how the European economy will grow because this is a drag on the economy when we have to build the equity”, Clausen said. A review of the requirement could go hand in hand with the regulatory process under way, he said.

“We shouldn’t’ scrap anything”, Clausen said. “Everything is well thought-out. But we’re adding on top all the time.”

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