On the right track to Basel III - German private banks welcome the European Commission’s legislative proposal
28 July 2011 - "The European Commission is basically on the right track with its planned implementation of Basel III," Michael Kemmer, General Manager of the Association of German Banks, said today in Berlin. "The legislative proposal which has just been unveiled largely implements the Basel proposals 'as is'. The package will thus make an important contribution to increasing the stability of the financial system." But to achieve this objective, it was important to ensure the proposals were introduced simultaneously worldwide, he continued: "It is therefore regrettable that the Commission has refrained from including a so-called review clause." A clause of this kind would make the entry into force of the EU legislation conditional on implementation of Basel III in other major financial markets, such as the US or Asia.
The Association of German Banks warmly welcomes both the Commission's approach of introducing Basel III largely in the form of a regulation and the ban on national gold-plating. In Kemmer’s view, gold-plating - the practice of further tightening the rules at national level - would hamper consistent implementation in Europe.
Kemmer considered it unfortunate that the Commission had sometimes gone beyond the requirements of the Basel Committee. This applied, for example, to the introduction of a new risk category to be monitored under pillar 2. "Including leverage risk in the consideration of a bank's risk-bearing capability and requiring capital to be set aside to cover it diverges from the Basel regime and is a substantial additional burden which will put European banks at a considerable competitive disadvantage," said Kemmer.
He welcomed the fact that the Commission was following a 'substance over form' approach to defining core Tier 1 capital, thus avoiding discrimination against banks on the basis of their legal form. This took account of European specificities since CRD IV would cover all banks in Europe and not just internationally active joint-stock companies.
