Basel Faults EU for Deviations From International Bank Standards
Dec. 5 (Bloomberg) — Global banking regulators rebuked the European Union for failing to properly implement capital rules intended to avert another financial crisis.
The Basel Committee on Banking Supervision said that European legislation to apply the international standards is “materially non-compliant,” the lowest grade given by the group so far in its review process of member nations.
Deficiencies in EU rules include “the treatment of exposures to SMEs, corporates and sovereigns,” as well as exemptions to part of Basel’s treatment of derivatives trades, the group said in a report on its website today. The committee also published a report on the U.S., judging it “largely compliant” with the standards known as Basel III.
The latest Basel standards more than triple the minimum amount of core capital that internationally active banks must have to at least 7 percent of their risk-weighted assets, while also toughening rules on how banks should measure the possibility of losses on their investments.
The Basel group brings together regulators from about 30 nations including the U.S., U.K. and China to coordinate rule- making. It is carrying out a series of studies into how well nations are implementing the Basel III rules, after patchy application of the last round of global standards, known as Basel II.
The committee has also published final reviews of Canada, Australia, Brazil, China, Switzerland, Singapore and Japan, and found all the countries to be compliant.
Counterparty Credit Risk
The Basel reviews assign countries grades for how they have applied individual parts of the capital rules, as well as an overall grading.
Before today, no country had received a final report with an overall rating lower than compliant, or with any individual gradings lower than “largely compliant.”
The EU report assigns a grading of “non-compliant” for its so-called “counterparty credit risk” rules that are used to set capital requirements for derivatives, and a grade of “materially non-compliant” for capital rules based around banks’ internal models.
The report on the U.S. found the country to be in material non-compliance in two areas — its rules around securitization and implementation of a so-called standardized approach used by smaller banks to measure their capital requirements.
To contact the reporter on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net To contact the editors responsible for this story: Patrick Henry at phenry8@bloomberg.net Jones Hayden
