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03 May 2010

ECON committee hearing on CRD IV and Basel III

MEPs quizzed a panel of experts on issues such as the level and quality of capital, how to address the pro-cyclical nature of the Basel II rules, the introduction of supplementary measures such as leverage ratio, and liquidity management.

Stefan Walter, Secretary General, Basel Committee on Banking Supervision, remarked that the primary objective is to have a banking sector with more and better capital.
The Basel Committee reform wants to:
·         Ensure that high quality capital is available to face losses from al risk
·         Promote further liquidity
·         Establish minimum global standards
·         Strengthen the supervision of systemic financial institutions
Banks have returned to the same level of profits they have before the crisis, due in part because of the huge public support and now these profits should be used to build up better and more capital.
Barbara Frohn, special responsible for Basel II, risk management, risk analysis, provisioning, from Grupo Santander. She presented the following key messages:
·         Basel III does not touch corporate governance and this should be carefully considered under the new legislation.
·         The proposal should not be just considered in isolation, there is a need to address each of the impacts assessments and then legislate.
·         The notion of capital is still not achieved. There is not fully harmonisation of the accounting rules which makes the ‘capital matrix diverge’ considerably from one bank to another as well as from one member state from another.
·         A dual system where accounting standards setters decide on thing and the EC another should be avoided.
·         Pro-cyclicality cannot be fully avoided.
Andreas Treichl, Chairman of the Management Board and Chief Executive Officer, Erste Group Bank, defended retail banks by saying that Basel III is helping investment banks and not retailing banks.
Adrian BLUNDELL-WIGNALL, Deputy Director, Directorate for Financial and Enterprise Affairs and Special Advisor to the Secretary-General on Financial Markets, OECD, stressed that the OECDE has concerns as regard the liquidity proposal. He argued that in the 50’s and 60’s it was applied and did not work.
Othmar Karas (AT/EPP) fully agreed with Mr Treichl and said that it is essential that Basel III rules consider the impact on retail banking as it could seriously damage access to credit for SMEs.
Sven Giegold (DE/Greens) advocated for all types of banks to be targeted under Basel III as most of the retails banks have also branches in the Cayman Island and assume more risk than they could take. 
Wolf Klinz (DE/ALDE), stressed that there are rather different starting positions in the banking sector within Europe and with the US. Having a single timetable for implementation could have serious consequences in some member states.

Stefan Walter, Secretary General, Basel Committee on Banking Supervision (view)
Andreas Treichl, Chairman of the Management Board and Chief Executive Officer, Erste Group Bank (view)

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