Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

New global rules leave just 10 big EU banks short of capital, draft shows

Published 10/22/2021, 07:43 AM
Updated 10/22/2021, 07:56 AM
© Reuters. FILE PHOTO: The skyline with the banking district and the headquarters of the European Central Bank (ECB) are photographed in Frankfurt, Germany, October 4, 2021. REUTERS/Kai Pfaffenbach

© Reuters. FILE PHOTO: The skyline with the banking district and the headquarters of the European Central Bank (ECB) are photographed in Frankfurt, Germany, October 4, 2021. REUTERS/Kai Pfaffenbach

FRANKFURT (Reuters) - Only 10 major European banks may need to raise capital as a result of the rollout of new global rules and their shortfall could be smaller than 27 billion euros ($31.43 billion), according to draft European Union regulation seen by Reuters.

The impact would be much smaller than the 52.2 billion euros estimated by the European Banking Authority (EBA) last year, a sigh of relief for a sector that has been plagued by low profits for a decade and is still recovering from a pandemic-induced recession.

The draft of European Commission's Basel III directive, which transposes the final batch of global rules aimed at avoiding a repeat of the 2008 financial crisis, put the increase to EU banks' minimum capital requirements at between 0.7% and 2.7% by 2015 and 6.4%-8.4% by 2030.

"According to estimates provided by the EBA, this impact could lead a limited number of large EU banks (10 out of 99 banks in the test sample) to have to raise collectively... less than 27 billion euros," the Commission said in the document.

The EBA said the banks in the test sample were from 17 EU countries and represented around 75% of total EU banks' assets.

Banks had lobbied for a more flexible interpretation of the "output floor", which limits their discretion in setting their own capital requirement, but their wishes were not fulfilled.

The European Parliament will have the final say on approving the rules, but regulators have warned the bloc not to stray from the standards already agreed at a global level.

The directive, which is due to be published next week, also gives supervisors the power to impose requirements relating to climate risk and contains stricter rules for branches of foreign banks in the EU.

This gives extra legal backing to the European Central Bank, which has been putting pressure on banks to disclose and tackle risks relating to climate change, such as weather hazards and changes in regulation.

As regards foreign branches, which had assets worth 510 billion euros at the end of last year and are concentrated in Belgium, France, Germany and Luxembourg, they will now be subject to a common authorisation procedure.

© Reuters. FILE PHOTO: The skyline with the banking district and the headquarters of the European Central Bank (ECB) are photographed in Frankfurt, Germany, October 4, 2021. REUTERS/Kai Pfaffenbach

They will also have to comply with requirements relating to their capital, liquidity, governance and risk management, the draft shows.

($1 = 0.8591 euros)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.